Evolving Narratives: The transition from Web2 to Web3

In the aftermath of the crypto winter, the blockchain and Web3 market is beginning to show signs of a strong revival. The bear market, while challenging, was marked by significant development and innovation, laying the groundwork for a plethora of new projects. These initiatives, conceived in times of adversity, are now gaining momentum and promise to make a substantial impact on the industry.

From a venture capital perspective, Renat Lokomet of Raw Ventures delves into the rejuvenated market, spotlighting emerging narratives, and forecasting future shifts. It will trace the trajectory from Bitcoin's inception to the present Web3 landscape and speculate on the future direction of these technological advances.

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Shifting Markets: From the Crypto Winter to Renewed Growth

The aftermath of the 2022 FTX debacle marked one of the most challenging periods for the crypto sector, characterised by unprecedented systemic contagion and significant losses due to fraud and negligence.

This bear market saw a dramatic downturn in funding opportunities, putting numerous projects on hold. Further contagion outside of the ecosystems including the unexpected collapse of Silicon Valley Bank, had downstream effects on the crypto markets, particularly impacting the stablecoin giant Circle.

However, strong teams persevered. A brilliant example of this is Solana, an ecosystem that had been ravaged by the fall of SBFs empire the most, and is now one of the most popular projects by active monthly users, hitting nearly 1.5m in March. This is the result of the perseverance of the builders in that space and the support of the community they had garnered, it is something that all web3 projects should strive for.

Historically, bear markets have served as incubators for future successes in subsequent bull markets, a trend that continues today. Technologies developed over this period are finally making their way to the market, pushing the boundaries of blockchain and Web3 technologies and gaining significant traction.

The acceptance and release of the first crypto ETF (Bitcoin), has been a driving force for new liquidity entering the market, and finally consolidating the position of cryptocurrencies in this world.

The reception of the ETF has been tremendous, breaking previous records held by other ETFs in terms of volume and inflows, having over $100bn in traded volume and over $22bn inflows in just 2 months. However, this is only the beginning as stated by Larry Fink, CEO of Blackrock, who has been a major driver for Bitcoin ETFs and for the tokenization of all assets. Major institutional players are now seeing the value that blockchains bring and their role in moving the world towards digitisation.

The emergence of new technologies invariably leads to the formation of new narratives, propelling growth in these domains. However, this progress often renders older narratives obsolete, sidelining numerous projects. This phenomenon primarily occurs because many projects fail to address genuine market needs or achieve product-market fit, instead opting to exploit speculative market trends. In hindsight, it's evident that most meme coins and speculative assets like NFTs were merely phenomena of the previous bull market, with new NFTs such as Ordinals and meme coins on Solana getting more traction and overtaking them, displaying the power of new narratives. Authentic innovation requires real-world applications and the infrastructure to support them, only then we can have real-adoption of web3 and blockchain from non native users, leading to the fabled ‘mass adoption’.

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Emerging Technologies and Narratives: Paving the Way for Mass Adoption

Recent initiatives to scale blockchain technology are setting the stage for mass adoption, making it faster, more accessible, and affordable. This effort, crucial for advancing crypto and Web3 technologies, aims to enhance the user experience, addressing the key barriers that hinder widespread use. These developments are reshaping narratives around the potential of emerging technologies for mainstream acceptance.Enhancing the user experience (UX) is one of the technological barriers that currently deters widespread adoption.

Innovations such as Layer 2 roll-up solutions and data-availability-focused blockchains, including the development of "Modular Blockchains" like Celestia, have spearheaded efforts to improve UX.

These solutions offer scalability and user-friendliness, facilitating the development of decentralised Web3 applications and attracting significant user engagement and market appreciation.

Moreover, the advancement of Zero-Knowledge (ZK) proof technology has rekindled interest in user and data privacy within blockchain interactions. ZK technology is particularly attractive for Web3 projects aimed at verifying user data without external exposure, integrating KYC/AML services into Web3 projects and addressing regulatory concerns. The ongoing excitement around ZK technology hints at the potential for more sophisticated and privacy-focused smart contracts, moving towards a more open and free blockchain ecosystem.

New and exciting developments in the sphere of AI have also made waves in the blockchain space and are forging novel applications and narratives. Even if AI inherently won’t find its own unique market fit in web3, it can certainly contribute to accelerated growth. Despite the growth and traction of these new narratives, the sector is still awaiting real usage and adoption, where users are willing to pay for the products and services they utilise, extending beyond the crypto community.

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Transitioning from Web2 to Web3

For several years, the overarching goal of the cryptocurrency industry has been to usher in an era of mass market adoption, heralding Web3 as the next evolutionary leap in internet technology.

While Web3 is often touted as the future of the online world, it continues to be met with scepticism. However, the gradual migration of users from Web2 to Web3 platforms is critical for achieving widespread acceptance. The question remains whether a seamless transition will occur or if a hybrid model, referred to as "Web2.5," will serve as an intermediary step before a more revolutionary "Web4" emerges.

At this pivotal moment, the industry stands on the threshold of significant change, with certain platforms potentially leading the charge toward this new digital frontier. 

A notable example is Telegram and its native blockchain, TON. Telegram has adeptly integrated Web3 functionalities into its messaging app, providing its vast user base of 900 million with access to native crypto wallets and payment systems. This integration poses a critical question: if a platform with such extensive reach and robust technological implementation struggles to achieve real-world usage, what does this imply for the broader Web3 adoption? This scenario prompts a reevaluation of whether Web3's goals are currently attainable or if the industry has yet to lay the groundwork for the next technological and internet evolution.

The challenges facing Web3 businesses in achieving real usage and mass adoption are multifaceted. Improving user experience, enhancing educational resources, and developing genuinely useful products that appeal to the majority are paramount. Moreover, navigating the rapidly evolving regulatory landscape remains a significant hurdle for the sector. These challenges underscore the need for Web3 initiatives to focus not only on technological innovation but also on creating tangible value and utility for a broad audience.

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The Investment Landscape and the Future of Web3

The emergence of a new bull market has subtly shifted perspectives within the investment community regarding Web3. While capital has become more accessible and valuations have begun to rise, the landscape is markedly different from the speculative heights of 2021.

Traditional venture capital remains cautious, often deterred by the unique investment propositions within the cryptocurrency domain. Chris Dixon of a16z, the most prominent traditional VC that invests into crypto and web3 has stated that there is a very clear split of cultures within the sector: people who are investing in technology, and people who want to purely speculate.

His bet is on the fact that the technological aspect will eventually triumph, and that will cause a big breakthrough for the sector, leading to real use cases and adoption. Many projects offer tokens rather than traditional equity, with long vesting periods that expose investors to market volatility and projects that frequently lack a sustainable business model or revenue stream. However despite this, in tough years such as 2023, the sector had seen over $10bn in investments from VCs, down from $32bn in 2022. Given the current environment, it can already be seen that investors are coming back and beginning to pour money in again.

Traditional investors, wary of the speculative nature of deep crypto ventures, are leaning towards Web2-to-Web3 bridge projects that adopt familiar revenue-centric models, with tokenization as a potential future add-on. These projects prioritise immediate, tangible solutions for mass adoption, emphasising the practical over the speculative. As the blockchain and Web3 space evolves, mastering the interplay of market trends, technological advancements, and regulatory hurdles will be key for those looking to harness the digital revolution's next wave.

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The Future is Bright

Despite the current flaws and challenges that exist within the blockchain and web3 industry, with an extremely talented pool of individuals building and the natural progression of technology, the future remains bright, brimming with potential.

The negative aspects, such as speculation, that currently hold the industry back,  will eventually subside, leading to practical use cases and mass adoption of blockchain and web3. However despite this, it is still not clear exactly what form this will take. Transformation and evolution are unstoppable, and adoption will be reached in some shape or form, in a way where the internet becomes more decentralised, censorship free and user centric, escaping the grasps of the internet that exists today in the hands of Big Tech.

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