Where is the fertile ground for Web3 growth after the carnival?

In the past few months, in the process of brand managers and many entrepreneurs and observers discussing the future development of the industry, going overseas and Web3 are almost the two most mentioned keywords. Objectively speaking, the ideal world advocated by Web3 is still in the conceptual stage, and it is difficult to say clearly whether it is the underlying consensus, infrastructure or application ecology.

The separation of views brings more space for discussion.

This article will continue to elaborate on the main track of Web3 investment, project implementation and supervision status.

This is the second article in our series of focusing on new trends and discussing Web3. It is shared by a former media person and a current institution’s overseas investment researcher.

On July 13, the General Office of the Shanghai Municipal People’s Government issued the “14th Five-Year Plan for Shanghai’s Digital Economy Development”, proposing that Shanghai will cultivate new data elements including digital content and digital trade during the “14th Five-Year Plan” period. Support leading companies to explore the construction of NFT (non-fungible token) trading platforms, and research and promote the digitization of NFT and other assets, the global circulation of digital IP, and the protection of digital rights to be piloted in Shanghai.

The above news has sparked heated discussions in the market. Some industry insiders said that this is the first time that the local government has clearly affirmed the value of NFT in asset digitization and digital IP circulation, and it also reflects one of the key directions of its development and layout in the digital economy.

Since then, many cultural property exchanges have announced that they are exploring digital collection trading business. In addition to the government and cultural exchanges, giants such as Google, Meta, and Ali have already been actively deploying Web3-related ecosystems.

In October 2021, Facebook officially announced that it would change its name to Meta to transform the Metaverse. In addition to Meta, the six largest listed companies in the world – Amazon, Apple, Google, Microsoft, Nvidia, and Tencent have all started related Metaverse plans and are preparing to launch products worth billions of dollars.

Considering the phenomenon of a large amount of hot money and the influx of capital into the Web3 primary investment market, we have sufficient reasons to believe that Web3 has become a new blue ocean of capital. But no one has yet been able to determine whether this blue ocean of capital can further spawn phenomenal products that can be implemented and lead to a new era.

NFT, Metaverse, GameFi and other multiple tracks are running in parallel, and the difficulty of landing varies greatly

According to Crypto Fund Research statistics, there are currently nearly 900 cryptocurrency funds in the world, distributed in more than 80 countries, with a total size of up to 69.2 billion US dollars, including crypto hedge funds, venture funds and index funds. In the field of Web3 alone, in less than a year, more than 40 investment institutions have publicly announced the establishment of a Web3 investment fund, with a public investment of more than 17 billion US dollars. Although the overall cryptocurrency market is currently declining and the market value of the cryptocurrency market has shrunk sharply, established institutions and investors are still accelerating their entry.

In terms of announcement time, except for a16z, which began to deploy Web3 in the fourth quarter of 2021, most of the rest, whether traditional investment institutions or blockchain investment institutions with a relatively young history, will not start public deployment until 2022. Among them, most of the Web3 funds of blockchain investment institutions were established in the first quarter of 2022, while traditional investment institutions generally began to set up investment funds that officially focused on the Web3 track in the second quarter of 2022.

Analysis of the funds that have announced their investment portfolios shows that in the investment track, Web3 institutional investors are more inclined to the NFT, Metaverse, DeFi, DAO and GameFi tracks. In addition, there are a small number of SocialFi, privacy protection arrangements Wait for the track. (For details of each track, see the concept note at the end of the article)

This trend not only reflects the current capital trend of Web3 investment institutions, but also reflects the difficulty of landing on various tracks in the Web3 field to a certain extent.

Compared with back-end products such as underlying facilities, front-end products with Web3 attributes not only have a lower investment threshold, but also can be recognized by the market faster with the blessing of the outlet, and directly obtain economic benefits to recover the investment cost.

For the underlying facilities, after the completion of the project research and development, it is necessary to invest a lot of manpower and material resources in ecological construction to attract different products for deployment. In addition to technology, community and ecology are also the keys to the success of an underlying facility product. Only under the premise of ecological development and prosperity, can the underlying facilities develop positively and have the opportunity to realize revenue through transaction fees generated by users.

The success of a front-end product depends largely on whether there are enough users of the product and sufficient spending power. However, unlike back-end products, after the development of front-end products is completed, the operation team can choose the options currently on the market. The low-level facilities with better ecology are deployed, relying on their existing ecology and community to complete the early cold start.

That is to say, to a certain extent, emerging front-end products can benefit from the prosperous ecology and community development of the underlying facilities. At the same time, if a front-end product is launched with a certain underlying facility but the development is not good enough, a new underlying facility can also be selected for redeployment.

The phenomenon-level Web3 game application StepN, which was once out of the circle in China, is an example. Although its innovation in economic model design and game concept is the fundamental reason for StepN’s rapid development, its deployment of the star underlying public chain Sol has also contributed to StepN’s success.

On July 12, StepN released official news that in the first quarter of 2022, StepN generated a profit of $122.5 million through platform fees. In less than half a year since its establishment, StepN’s DAU has approached one million, and its market value has exceeded $1 billion. It has grown into a Web3 unicorn company.

Big manufacturers have obvious preferences, but profit exploration is difficult

Different from multi-track betting by investment institutions, traditional Internet manufacturers prefer to bet on NFT and GameFi tracks at this stage.

According to incomplete statistics from Planet Daily, in the second quarter of 2022, GameFi received a total of 82 investments, accounting for 16% of the total quarterly financing, and the amount was as high as 2.996 billion US dollars, accounting for 23.5% of the total quarterly financing of the entire industry. The number and amount ranked first in the industry; while the NFT track received 67 financings, ranking second.

In March of this year, Immutable, a service provider of NFT second-tier expansion solutions, announced that it had completed a $200 million financing at a valuation of $2.5 billion. Temasek led the investment, with participation from Mirae Asset, ParaFi Capital, Declaration Partners, and Tencent Holdings.

This is the first time Tencent has invested in a company in the NFT track at a public level. Prior to this, Tencent had always maintained a cautious attitude towards cryptocurrencies and other related fields. It not only issued several documents saying that Tenpay, a subsidiary of the group, resolutely resisted cryptocurrency transactions, but also tightened the level of content review and distribution.

Tencent Research Institute previously introduced in a report that there must be three important infrastructures for the establishment of the real Metaverse, and NFT is one of them, which can be called a hyperlink global proof . To put it simply, your assets can be transmitted in different universes, different worldviews, and different application scenarios if you have a global proof, not limited to a certain game or a certain social application field. The concept of the Metaverse is broader than NFTs, but with the current level of technology and cognition, NFTs are easier to implement and closer to the public.

Therefore, this investment was interpreted by the outside world as Tencent’s “purchasing tickets to enter the Metaverse”. At the same time, giants such as Ali and Tencent are also building localized NFT products and promoting the Chineseization of Web3.

Analysis of the logic and economic model of each Web3 product shows that, unlike DeFi, DAO, SocialFi and other product categories with strong financial attributes, NFT and GameFi do not necessarily need to establish a token economic model and trading system, which means NFT And GameFi can gain more living space in the context of strong supervision of tokens.

However, the preferences of big manufacturers and relatively loose development space do not mean that the business can easily succeed. In the commercial society, success also means profitability.

On July 20, several media reported that Tencent was planning to abolish the “phantom core” business. Magic Core is a digital collection app launched by Tencent in August 2021 (NFTs issued in China are usually called digital collections), and it is one of the top digital collection distribution platforms in China. This also reflects to a certain extent that the current domestic NFT products are facing multiple development difficulties.

First of all, neither Magic Core nor other domestic NFT platforms have trading functions, which means that these platforms naturally have the disadvantages of being closed and low liquidity.

Secondly, although the NFT issued by the platform is officially not allowed to be traded, users can still conduct transactions through P2P methods such as Alipay transfer and Xianyu. Some people have made the first pot of gold in the NFT field in this way. However, the resulting regulatory risks have made various giants conducting NFT business have to think more about their business layout.

Finally, as a project of a commercial company, it will face certain cost and revenue pressure sooner or later, and after the domestic NFT platform has castrated the transaction function, it is difficult to generate through the main profit channel of transaction fee. revenue. Before finding a more suitable path to solve this problem, the NFT projects of various domestic manufacturers are destined to be just a fruitless test of the water, and cannot grow into a mature business that can maintain its own revenue and expenditure.

After that, which direction the domestic NFT project or Web3 should go in is still an undecided issue.However, considering the current industry development trend, going overseas may be a must-have choice.

Web3’s out-of-the-circle is driven by the “get rich effect”

The reason why Web3 can become an investment outlet and a hot topic in the short term is inseparable from the richness effect behind it.

Taking StepN as an example, it can become a phenomenon-level Web3 product. In addition to the active publicity of some KOLs and investors, it is inseparable from the richness effect behind StepN.

In StepN’s “running is earning” model, the amount of money earned depends on the user’s exercise situation and shoe factors. Shoes have different attributes, types, qualities, and levels. Users can run within the effective energy time range according to the pace interval corresponding to different shoes, and can earn unlimited additional game tokens GST, which can be used to upgrade sneakers and gems. Unlock slots, mint new shoes, or directly exchange for stablecoins.

The participation of well-known investors such as Zhu Xiaohu further added some enthusiasm to the development of StepN. In April of this year, big-money players began to flock to StepN, pushing up the price of virtual running shoes in StepN all the way. Binance’s gray shoes once reached as high as $15,600, followed by strong FOMO sentiment. In the face of rising market sentiment and virtual running shoe prices, investors were afraid of missing investment opportunities and kept raising their bets, which further pushed up market sentiment. As well as the price, at the craziest time, investors once claimed that StepN could “return to capital in four days”.

Under such a strong FOMO sentiment, ” early investing, early return, early profit” has become a consensus.

Five months after going live, StepN’s DAU increased to 800,000, and MAU increased to 3 million. According to TechCrunch’s report in May, StepN’s daily platform fees are about $3-5 million, monthly revenue can reach $100 million, and it has more than 70 employees in Australia, the United Kingdom, the United States, Singapore and other places.

The success of StepN has validated the relative viability of the “X to Earn” model, which experimented with a system where the on-chain world is more closely connected to the real world. Since then, in less than a month, X to Earn-like projects on the market have begun to appear at a geometric rate.

“Money” (or incentives) has become the magic weapon for Web3 projects to open up the market.

Welcome regulation after carnival, Web3 fertile soil in Africa?

After the carnival, there is regulation.

Different from the cryptocurrency-related regulations that have already taken shape, there are currently no specific laws and regulations for Web3 products, whether it is the mainstream developed countries in the United Kingdom and the United States or the third world countries with imperfect Internet infrastructure.

But that doesn’t mean that Web3 is free to develop on a global scale. Due to the token mechanism in most Web3 projects, countries that have laws related to cryptocurrencies also have certain restrictions on Web3 projects. On May 27, the StepN team announced that it would stop GPS and IP location services for users in mainland China on July 15. This means that mainland Chinese users will no longer be able to participate in StepN’s games.

In this context, some African regions with underdeveloped economic development levels have become fertile ground for Web3 development. On the one hand, policy makers attempt to overtake in a corner, and make arrangements at the beginning of the new era to make up for the historical disadvantage of the country or region in terms of economy and other aspects; The product has enough room for experimentation and use.

Some research reports show that before the advent of mobile payment, the number of bank branches in Africa is far below the number that should be suitable for the population, and only a few bank branches mainly provide services for high-end groups.

According to Chainalysis, the market cap of the African cryptocurrency market has grown by 1,200% in the past year, with Kenya leading the world in Defi trading volume for the second year in a row. This has also caused a strange phenomenon, that is, although the main talents of cryptocurrencies and Web3 are gathered in the United States, Singapore, Dubai and other regions, the use and popularization of cryptocurrencies and Web3-related products are mainly concentrated in Africa.

Earlier, Johnny Lyu, CEO of the cryptocurrency exchange KuCoin, said in an interview that the adoption rate of cryptocurrencies in Africa has surpassed the United States, Europe and Asia to become the first in the world.

Although this view is difficult to obtain universal consensus, it shows to a certain extent the high acceptance rate of cryptocurrencies in the African region. And this provides a good foundation for the development of Web3.

In the concept of Web3, the token mechanism is a basic system to ensure that users actively participate in ecological construction and project research and development. To a certain extent, the token mechanism is the fundamental driving force for the development of a Web3 project. This necessarily requires that Web3’s customer base has received a good cryptocurrency education and rich experience in using it. This is difficult to achieve in countries with relatively well-developed regulatory systems for cryptocurrencies.

Conclusion:

All in all, at present, whether at home or abroad, there are a large number of investors and entrepreneurs rushing to the construction of Web3, but these constructions are still only tentative, and they are crossing the river by feeling the stones. What kind of process will be experienced in the middle, how long this process will take, and what kind of future will be realized, no one can predict yet.

From an objective point of view, everyone is still in a concept-first stage. Whoever proposes a relatively novel model and takes a relatively advanced step will be paid by the market.

Additional Notes:

NFT: The full name is Non-Fungible Token, which refers to non-fungible tokens. It is the only cryptocurrency token used to represent digital assets (including jpg and video clip forms), which can be bought and sold.

Metaverse: A virtual world that is linked and created by scientific and technological means, a virtual world that maps and interacts with the real world, and a digital living space with a new social system.

DeFi: “Decentralized Finance” (Decentralized Finance), also known as “Open Finance”. It is the product of the combination of cryptocurrency, blockchain and smart contracts represented by Bitcoin and Ethereum.

DAO: Decentralized Autonomous Organization, is an organizational form derived from the core idea of ​​blockchain (co-creation, co-construction, co-governance, and sharing of collaborative behaviors spontaneously generated by groups that reach the same consensus). It is a subsidiary product after the blockchain solves the trust problem between people.

GameFi: Financial gamification, simply put, GameFi=NFT+DeFi+game, where NFT is a necessary means of decentralization, corresponding to game equipment and props.

SocialFi: namely Social + Finance (DeFi), socialized finance.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/where-is-the-fertile-ground-for-web3-growth-after-the-carnival/
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