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The shift to Web3 may have been a brutal baptism (1)

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"Web3 is like a siege, with a lot of people outside trying to get in, and a lot of people more afraid of missing it."

The shift to web3 may be a brutal baptism (1)

Maxwell Strachan

Iguana, Dao2

There is a sense that the whole world is cheering for cryptocurrencies and NFT. But many in the industry worry that the gold rush, akin to "collective Theranos," is distorting the economy in favor of professional investors.

Sometimes there is an illusion that the whole world is moving to Web3, and the question is, why? Suddenly, there were Web3 media companies, Web3 advertising companies, Web3 studios, Web3 marketing strategies, and Web3 publishing networks. LimeWire and MoviePass have come back from the dead and, as one of their ceos put it, "the new impetus comes from Web3 technology". Clearly, Web3 has not only "changed the rules of the game" and "redesigned the real estate industry", but has also changed the future of the Internet and, perhaps, the entire global economy.

Never mind, few people are telling others exactly what Web3 is (or isn't). What matters to investors is that Web3 is the hot new thing, and entrepreneurs are piling in. Hadley Harris, a venture capitalist, told me that about half of the Web3 investments he's seen recently come from founders who weren't in the space six months ago.

This claim is backed up by Alchemy, which sees itself as the Web3 infrastructure equivalent of amazon web services. It said in February that "hundreds of mature Web2 companies" were using its platform to move to Web3. Even new pharmaceutical companies are now taking a Web3 "cryptocurrency first approach", with one raising the possibility of issuing "cryptocurrency tokens" to its clinical trial participants.

"It's like a siege, with a lot of people outside trying to rush in, and a lot of people more afraid of missing it."

The speed of the transition to Web3 can be almost insane. An Ottawa entrepreneur worried that the world was slipping away said on his company's Zoom conference call that he was taking his entire company by surprise by switching to Web3. I said, 'Guys, this is the future, this is where it's all going,' he said. "If we miss this ship, I don't think we'll ever get back on board."

Like many of his fellow entrepreneurs, Nick Gerard, CEO and co-founder of Norby, a startup focused on the maker economy, noticed last year that his competitors were jumping headlong into the world of cryptocurrencies and Web3. Gerard says potential investors in Norby are also pushing him toward Web3. But Gerard can't help but wonder at the whole thing. Few of his customers, the people he considers most important, show much interest in Web3 technology." "I can count on one hand the number of times I've actually heard 'NFT' come out of these people's mouths," he told me. "Even so, he and the rest of the team were still debating whether to switch, fearing they'd miss out on a well-known opportunity.

"Nobody wants to be Paul Krugman," Mr Gerrard said, referring to an infamous 1998 remark in which the Nobel prize-winning economist predicted that the Internet would eventually be no more influential than the fax machine. (He is also a well-known anti-Bitcoin and cryptocurrency activist).

Web3 hysteria has continued this year, even as the broader tech industry has been grappling with rising interest rates and plunging stock prices. In the last six months, it's become quite ridiculous, "said a partner at an investment firm focused on cryptocurrencies. According to research firm Pitchbook, the top 15 venture capital firms invested more money in Web3 and DeFi early and seed rounds than in any other area in the first three months of this year, the third consecutive quarter they've done so.

Last quarter, the early-stage and seed-stage Web3 sector raised $2 billion from top companies, more than twice as much as the second-ranked biotech sector and three times as much as traditional fintech. These figures underestimate the overall level of interest and funding in this area. Blockchain companies have raised at least $9.5 billion this year after securing $18 billion in funding in 2021, and more firepower is on the way, according to data provided to Motherboard by research firm CrunchBase.

In late May, amid plummeting cryptocurrency prices, venture capital firm A16Z (Andreessen Horowitz), one of Web3's biggest institutional backers, announced that it had raised $4.5 billion in cryptocurrency funds after a series of high-profile investments in Web3 projects, Such as P2E games Axie Infinity and boring Ape Yacht Club (BAYC) parent company.

"It's definitely a gold rush," says Dayton Mills, Co-founder and CEO of Branch. Mills' company was a struggling telecommuting startup until it transitioned to the Web3 gaming platform. Investor interest spiked when he started talking about his vision for Web3. "That's a huge difference," he said. Some OF them I haven't even met, they just promise via email and don't even talk to me." He had planned to raise $2 million, but received pledges of $20 million in two weeks. "We stopped because it was unbelievable." "Something big is happening," Adds Mills. "A lot of people want to be part of it, and a lot of people are more afraid of not being part of it." What are they participating in, "Mills added." It's like a siege, with a lot of people outside trying to rush in, and a lot of people more afraid of missing it." Exactly what they are participating in is hard to say.

The term "Web3" is sometimes attributed to Gavin Wood, one of the co-founders of the Ethereum blockchain, who in 2014 described an idealized version of the web in which systems don't trust organizations, but rather trust blockchain technology almost entirely. But it was not until last year, it did not enter the mainstream cultural context, when it began as a floorboard (coincidentally, dominated by risk enterprise brand), used for controversial financial technology products, including encryption currency, chain blocks, NFT, decentralized autonomous organization (or "DAO"), the universe and decentralized financial (or DeFi) products.

"It's like a collective Theranos, an unproven product with no one at the helm," says one venture capitalist.

In the view of some institutions, like A16Z, what ties these innovations together is that together they offer a theoretical vision of people's "ability to own a piece of the Internet "-- for example, through the use of NFT, which is essentially a tradable proof of ownership -- a receipt of ownership. In such a world, people can use and even monetize their NFT across multiple platforms, not just on Instagram. Such a system, boosters believe -- or at least claim to believe -- will lead to a fairer, more public version of the web, one that will wrest control from the tech giants that profit from people's data and creativity, creating a world in which community trumps everything else.

Thus, much of the ideological rhetoric involves using Web3 to "truly empower financial inclusion" (again A16Z's own words) by bringing in people marginalised by traditional financial structures. Such arguments are certainly tempting. Few feel that the financial and Internet structures underpinning society cannot be greatly improved. But they also obscure the fact that professional investors are not just pushing their money into the middle of the poker table to improve the world. As Hilary J. Allen, a law professor at American University, put it succinctly, "The reason venture capitalists are pushing this is to make money."

Class in Web3 world, risk investment and other professional investors found a set of unique attractive environment, they think can earn a lot of money, without having to rely on virtual reality technology or touch giant leap - sometimes by completing an impressive regulatory arbitrage, sometimes is to use the new Internet market. "If there's any innovation in crypto assets, it's not in software engineering, it's in financial engineering," wrote Stephen Diehl, a London-based software engineer and cryptocurrency commentator. Allen, who studies financial regulation, said the rhetoric around empowerment and inclusion is a "cynical" ploy. She and others argue that this masks certain features of the Web3 system that make it attractive to venture capitalists, billionaires and other institutional players who, despite the industry's obvious propensity to fraud, still move aggressively to gain a foothold in the face of fraud and regulatory scrutiny.

在这里，我们有一个基本上不受监管的市场，它已经成熟，充满了不明确的估值指标、有争议的未注册证券、特殊的金融产品、套现方式以及面向公众的意识形态使命宣言。特别吸引人的是， Token 在 Web3 生态系统中的起到关键作用，这是一种新型的金融产品，监管机构仍在努力掌握，但风险资本家已经意识到，即使公司从未上市，他们也能快速而丰厚地兑现（如果他们上市，则会加倍）。

For now, at least, it is a near-perfect playing field for the professional money-making class, which, whatever its utility, leads to pressure to transition or die. One entrepreneur described in dismay how he was recently at a venture portfolio conference talking to a founder who was building a "decentralized" dinner reservation system. When he asked why a reservation system was needed on a blockchain, the founder said simply: "It's the future." At the very least, Web3 has the potential to lead to a better, richer version of the Internet. Yet it could equally prove to be what its harshest critics fear: a "hyper-capitalist" restructuring of the web that "contains the seeds of a dystopian nightmare".

"It's like a collective Theranos," says one venture capitalist, "an unproven product with no one at the helm." Many Web3 entrepreneurs and investors seem genuinely passionate about their mission to create a better Internet. For many of these people, Web3 is not an idyllic possibility, but a full-throated inevitability, spoken of with an almost religious fervor. "To me, it's really an ideology, which is strange because VENTURE capital firms tend not to invest in ideology," said Phil Libin, former co-founder and CEO of Evernote. In fact, shortly after a series of recent crypto controversies, including the dramatic collapse of $Luna and its sister "stablecoin" UST in May, A16Z still says Web3 has just entered its "golden age." That same week, it announced an investment in former WeWork CEO Adam Neumann's Web3 climate venture, selling "Goddess Nature Tokens."

Another such believer, Benjamin Cohen, who recently started an investment fund focused on Web3, told a cryptocurrency website in March that "blockchain technology and smart contract technology will inevitably be used in every aspect of our lives." This is not an isolated view. Alexander Taub, co-founder of miami-based DAO creation tool Upstream, told Motherboard in a Zoom interview, "every company that exists today will exist in Web3 in some form in the future. (Taub, wearing the "Just DAO It "hat, added," The potential market for DAO is in the trillions." ) Jason Henrichs, CEO of Alloy Labs Alliance, says many of the cult classes are "fanatics" and dismiss those who question them.

Evgeny Morozov, a technology columnist and researcher, even compared them to. The level of confidence of the annoying vulgar Marxists "who believe that, against all evidence to the contrary, they have been (and continue to be) insisting that objective developments within capitalism favour an inevitable transition to socialism does, on the face of it, seem odd, or at least premature. A January survey by strategy firm National Research Group found that only 13% of American adults surveyed knew what Web3 stood for, and more than half had never heard of the term. Another survey conducted around the same time said that less than two in five members of Generation Z believed that "metacarspace is the next big thing and will be a part of our lives in the next decade.

A16Z claims to have 22,400 employees by the end of 2021, according to a recent survey by Electric Capita. Web3 creators, with only 18,000 developers working on encryption or Web3, this is tiny compared to the more than 27 million developers worldwide. Some wonder if the Web3 hype is justified. Libin was initially attracted to Web3's concept of "beauty" and "elegance," he says. As CEO of startup studio All Turtles and virtual camera app MMHMM, and a former venture capitalist at General Catalyst, Libin has made a career finding companies that can solve real problems with a clear business model. But as he began to hear from more and more Web3 companies, he found himself unable to understand the benefits of developing certain projects on the blockchain, and why not using an internal database. When he started questioning some of the investment proposals he received, he didn't like the answers. Using such technology is often unnecessarily expensive and easy for hackers and fraudsters to exploit.

"Web3 proponents are trying to solve real problems that need to be solved, and I just don't think Web3 is going to be the solution," he says. "It doesn't make any sense to me as a programmer." The common argument against Web3, often repeated by venture capital firms, is that its backers are just ahead of the game, as was the case with the Internet in the 1990s. Martin Kenney, a professor at the University of California, Davis, who studies the industry, argues that this wild optimism is not new to Web3 and is itself at the heart of the venture and technology industry model. And investors, whose goal is always to sell companies, have an incentive to target hot industries and then help boost interest in them.

Whatever the new thing is, it's definitely in the VC's interest to hype it up, and you'd be a fool not to, Says Kenny. So you're going to give it to the press, you're going to tell people it's going to change the world, it's the best thing since sliced bread, whatever it is, it's going to convince investors that they need to own it." This may be convincing, as it was during the dotcom boom of the late 1990s, during which companies that added ".com "to their names experienced" dramatic "and" permanent "valuation increases immediately after rebranding, according to a study of the effects of the so-called" dot-com bubble." "Regardless of the company's involvement in the Internet." The researchers believe this so-called "network" effect is due to people wanting to be "connected to the Internet at all costs," even if these companies are "at best loosely connected to the Internet, if at all." Eventually, the boom turned into a bust, but not before many venture capitalists cashed in.

"Web3 proponents are trying to solve real problems that need to be solved, and I just don't think Web3 is going to be the solution"

Needless to say, the hype cycle has begun again. Kyle Samani, managing partner at a crypto-focused investment firm, told me that while most of his limited partners don't always fully understand the technology behind Web3, they want to be exposed to "all of it." A Citibank research report estimates that just one component of Web3, the "metasomes," could have a total potential market of $13 trillion and as many as 5 billion users within eight years. (By comparison, housing in the entire state of California is currently worth $9.2 trillion; Citi basically claims to believe that by the time today's high school students graduate from college, the metasurverse market will probably be bigger than all but three or four US industries.)

Slava Rubin, an early investor who founded Indiegogo and a search engine for alternative asset investments, says the enthusiasm reminds him of the e-commerce boom of the 1990s. "Whenever there is a change, there is an opportunity to replace traditional players and potentially make a lot of money on their investments," he said. This time, however, the world's best-known brands have piled in to avoid being left behind. Starbucks, ESPN, Spotify, and GameStop are working on NFT plans; Fidelity Investments, the largest 401(k) provider in the United States, is allowing people to put their retirement savings into bitcoin; Goldman Sachs is offering loans backed by cryptocurrencies; Jpmorgan chase, Gucci and Miller Lite are burying their heads in virtual worlds; Google has a dedicated Web3 team, and Facebook has become Meta.

Over the past century, venture capitalists have backed industries that have changed the world and created millions of jobs, most famously in the early days of the Internet. Josh Lerner, a professor at Harvard Business School who has also studied the venture capital industry, says what is rarely talked about is that the venture capital class has its share of mistakes. Citing the venture-backed clean-tech boom and bust of the late 2000s as a recent example, Lerner said, "Not only did technology prove much harder to come by than they thought, but many businesses performed so poorly that some of the best were blinded by their enthusiasm and burned through a lot of investor money."

Tomasz Tunguz 并不是因为 Web3 的意识形态基础而对其感兴趣。像很多投资者一样，由于 Web3 生态系统的经济特殊性，他看到了赚大钱的机会。Tunguz 是 Redpoint Ventures 的风险投资家，他写了一个关于该行业的热门博客，去年上半年，在他注意到 Web3 市场既具有资本效率又可以扩大到巨大规模后，他开始活跃在 Web3 市场 Tomasz 和其他许多人一样，惊讶地看着区块链平台 Solana 的 Token 价格从 8 月份的 40 美元上涨到 9 月中旬的 190 美元，到 11 月短暂达到近 800 亿美元的市值。

"It really opened a lot of eyes to the scale potential of these companies," Tunguz said. "Scale forces you to figure out what's going on." The closer he looked, the greater the investment opportunity seemed. First, there is no clear yardstick by which these companies can be valued. Over the past two decades, investors and entrepreneurs have worked together to develop fairly reliable, standardized financial models that allow them to value traditional software businesses with confidence after comparing them to similar, older businesses. "Most software businesses are really well understood," Tunguz says. "A startup walks in and the venture capitalists, like the private market investors, know exactly what it should be worth."