3 things that need to happen before Web3 (really) takes off

Web3 is the next generation of the Internet that will redefine our everyday digital experiences. Using cryptography and distributed ledger technology, Web3 sets the framework for a user-managed and controlled Internet. A tsunami of web3 projects has emerged, opening up new opportunities for various industries such as financial services, gaming, esports, media, entertainment, retail and more.

The Web3 ecosystem is currently experiencing significant growth in terms of venture capital financing. There is an ever-growing list of Web3 startups, be it DeFi protocols, NFTs, decentralized autonomous organizations (DAOs), play-to-earn (P2E) games, data storage, and social media services.

According to a report by DappRadar, venture funds and investors have invested more than $2.5 billion in blockchain gaming and related infrastructure in the first quarter of 2022 alone. That’s a huge increase from the total investment of $4 billion in 2021 and $80 million in 2020. And this is just one aspect of the vast Web3 ecosystem.

Another report, published on GitHub, suggests that there are more than 18,000 active developers in the Web3 ecosystem who commit their code to open-source blockchain projects at least once a month. The report further clarifies that the true number is likely higher because it does not take into account the development work done on proprietary Web3 projects.

By all statistics, Web3’s growth has been unprecedented. But it still has a long way to go before it enters the mainstream adoption phase. While investor and user interest in Web3 products and services is growing, several factors need to be addressed to accelerate the ongoing transition.

For Web3 to truly thrive, there are three critical areas that Web3 investors, developers, and users must address.

1. Users must shift their mindset to a user-owned model

In today’s Web2, “as-a-service” iteration of the Internet, users essentially have no say in the future direction of the products or services they use. In most cases, users and owners of the platform or service are often segregated until the platform or service is listed on a public stock market, allowing for greater accessibility of ownership among users.

Of course, shareholders are invited to vote on specific initiatives, but ordinary investors are far from the driving force behind corporate change. Even after stock purchases, the amount of decision-making power conferred on smaller shareholders through ownership is relatively minimal, preventing them from sitting at the table with institutional investors or funds that have more power to influence corporate decisions.

The Web3 model, on the other hand, offers real ownership. Tokens provide early and decentralized ownership of the platform or service that users enjoy. Existing users who have previously compromised on near-zero ownership in private companies should become familiar with the responsibilities of ownership and governance. They must be aware of the power of this ‘ownership’ and the extent to which they can contribute to and influence the direction of development of a product or service.

By investing early, even an average individual can become part of the project’s governing body, driving the product roadmap together with the community. The decision-making process becomes transparent, inclusive, and fair – features not normally found in the Web2 ecosystem.

2. Investors need to change to a “community-led, collaborative and participative” mindset

In the Web2 paradigm, investors compete for a percentage of control and board seats to ensure valuation and governance oversight.

However, this approach is less effective in Web3. Decentralized ownership is an important tenet of Web3. The network effect is best accelerated through decentralized ownership among community members who may have multiple roles (service user, investor, supplier, business partner) within the ecosystem.

3. Projects need to think about a sustainable way to attract users

Usually projects generate huge hype within a short period of time with symbolic incentives. There is no doubt that such campaigns quickly attract users and liquidity providers, ramping up the key metrics everyone is evaluating.

However, this practice has its drawbacks. It tends to attract mercenaries and token hunters who have no appreciation or loyalty to the platform’s purpose and long-term vision. Second, artificially inflated key figures, driven by short-term incentives, tend to obscure an accurate assessment of product-market fit. Third, too high a token reserve equates to wasting market budgets on things that don’t really matter in the long run, leaving the projects with much less “ammunition” in their war chest in the long run.

Instead, each project must carefully design the tokenomics. It’s a good idea to only allocate tokens after projects have found the right audience with similar interests and goals.

Conclusion

We are still in the first inning of Web3. While the phrase “We’re still early” has been overused, it’s not a figure of speech. It sounds cliché because it is true – we are still very early. I hope I’ve provided some food for thought for those of us who are hard at work building the next generation of the Internet.

Emma Cui is CEO and co-founder of LongHash Enterprises.