By Tim Lane, Partner at Follow The Seed VC
As Elon Musk put it, ‘the most entertaining outcome is the most likely’. So, here are my 5 unusual predictions for web3, and and below I’ll go into more details about how I came to these ideas:
- Pokemon Trainer will be a full time job
- Someone will buy a house (IRL) using a loan backed by a JPEG
- A DAO will buy a public company
- DeFi will see mass adoption, by people who don’t even know what DeFi is
- A blue chip company will create their own token
Hopefully these will give you an idea of why I’m excited about the future of Web3, regardless of whether the macro markets turn bearish due to rate hikes and more aggressive tightening this year.
Increasing awareness of Web3, crypto, and blockchain
Before we dive deeper into the topics covered in my predictions, let’s take a quick look at the crypto landscape as we move into 2022.
Over the last couple of years, we have seen some of the many crypto and blockchain use-cases grow in awareness and adoption, including DeFi, NFTs, DAOs, GameFi and the Metaverse.
Due to the increased awareness, the crypto assets in these spaces have sky-rocketed and over-achieved compared to the overall crypto market.
Some of the trends were more predictable than others. For instance, I predicted the NFT season boom, as you can see in my 2020 tweet below.
Other trends were a bit more surprising and came sooner than expected, such as Facebook’s rebrand to Meta, which led to a big metaverse-related token rally.
Let’s dive into the main topics that stand behind these predictions a bit more:
GameFi levels up
In 2013, Mt Gox was the largest bitcoin exchange in the space by a long way. Interestingly, Mt Gox started life as an exchange for Magic The Gathering players to trade their cards. Since then the crypto market has come full-circle back to gaming.
Gaming is and always was, it seems, an industry just waiting to be disrupted by blockchain technologies. In fact, Vitalik Buterin’s inspiration to create Ethereum came from a poor experience he had while playing World of Warcraft!
Today, gaming and crypto integrations come in multiple forms, from using NFTs as in-game items, to the creation of in-game currencies and in-game economies that have real-life value.
One of the recent big success stories was Axie Infinity and their adoption in countries like the Philippines. Sadly, during the Covid lockdowns, many Filipinos lost their businesses and their jobs, devastating many people’s livelihoods. For that reason, lots of people started playing P2E (play-to-earn) games such as Axie Infinity to either replace or subsidise their income. In many cases this new income was more than they were previously earning.
Now, imagine a blockbuster game like Pokemon Go, where each Pokemon is actually an NFT with real-life limited supply. Some Pokemons may even be unique. Imagine if there are only 1000 Mewtwos worldwide and you catch one, then list it on an exchange. How much would it be worth? My guess is easily over $1m, which means there will be plenty of incentive for skilled players to turn it into a full-time career.
Sounds far-fetched, perhaps? But don’t forget that the reality is that people are already making a decent living from P2E and the potential for this is likely to increase over coming years.
DeFi 2.0 Growth
The beginning of this bull-run started with many DeFi platforms gaining meaningful adoption and in many cases outperforming their traditional finance competitors (e.g. Uniswap trading volume vs most centralized exchanges).
A few key sub-genres stood out in the first wave of DeFi, which included decentralised lending and borrowing, decentralised exchanges, automated market makers(AMMs), and synthetic assets such as synthetic stocks, gold and stable coins. Some have described these as money Lego, or building blocks that can be combined to slowly engulf and replace the entire traditional finance sector.
An example of a platform that started to combine these various aspects of ‘money Lego’ was Mirror protocol, that allowed you to buy a synthetic version of a stock, let’s say Tesla, then provide that stock along with some stable coins as liquidity to the pool. You could then begin earning a yield via trading fees on the pair.
In the last few years the DeFi space has continued to evolve, improve, and combine various aspects of these ‘money Lego blocks’. I believe the next big step in this space will be the emergence of more retail-friendly user interfaces. We will start to see some regular apps in the app store that will give users access to DeFi level yield, whilst keeping the apps easy to use, and the crypto/blockchain element invisible to users. An example could be Coinbase offering stable coin yield to customers, by using Compound in the background.
Another area I think will see some cool innovations is the space in which NFTs and DeFi cross paths.
NFTs can represent pretty much any digital asset. The common use-cases you may know about are art and collectibles. But let’s consider another example of an online asset that has value, such as a domain name. Let’s say for example you own the domain name ‘shop.com’. This would clearly be a very expensive domain name, as it’s easy to remember, snappy, and has high commercial value. So let’s say you own that and it has a theoretical value of $10m. In Web2, there’s not much you can do with it, other than wait for someone to buy it, or use it yourself.
In Web3, we can turn the domain name into an NFT, then use that asset worth $10m as collateral to take out a loan. All of this could happen in minutes and it would be permissionless. It would be much easier than taking a loan from a brick and mortar bank, where you would spend weeks on the application, admin, and interviews, and still potentially end up being rejected for the loan.
…Or maybe you own an NFT that’s just a picture of a rock, but worth over $1m… Why not take a loan against it and buy a house?
Fun fact — go to this domain and check out who owns www.defi.io
DAOs go mainstream
For those that don’t know what a DAO is, it stands for Decentralised Autonomous Organisation. The main feature of a DAO is decentralised governance. Generally, when you invest in a DAO you receive tokens in return and you can use those DAO tokens as voting rights in the organisation.
A well known example you may have heard of was the Constitution DAO. A DAO that was created to buy the US constitution. They didn’t win the auction, however the amazing thing here was how insanely quickly the DAO was able to raise $47m.
Now compare that to how long it would take, and all the processes required, for a government to raise funds and get something done, e.g. doing something to combat climate change, donate to a third world country, or a country in crisis.
Consider the amount of time it would take to decide on how that money should be spent and the amount of middle-men that would take a cut before the funds reach the goal destination.
Using a DAO you could very quickly, efficiently and effectively raise money for a cause, then ensure that the funds are used only for that cause, using smart contracts and highly transparent blockchains.
‘Crypto’ becomes rebranded to ‘Web3’
Web3 is one of the greatest rebrands we’ve seen this year. And, let’s face it, there were some pretty big rebrands to choose from, including Facebook to Meta and Square to Block.
In crypto, we’ve been using the term Web3 for a while. Web3 alludes to the new dimension that is currently being added to the web: “the internet of value”.
However, what many people don’t realise yet, is that this rebranding has already had a huge impact. The word crypto has some unfortunate reputation issues, as its open and liquid nature has resulted in some extreme volatility, dishonest actors, and unscrupulous vapourware projects.
I was called recently by an old colleague who told me he wants to learn Solidity. Previously he had always been very skeptical of crypto due to its “speculative nature” as he put it. Web3 on the other hand feels like a much more suitable description of what is actually happening in the crypto space today, which has evolved from digital cash to a far wider spectrum of utility.
As crypto matures and the reputation of the space improves, we will see more institutional investors add crypto to their treasuries. Square, Tesla, Microstrategy and many others have already added Bitcoin. Some have added Ethereum, and just last week Deutsche Telekom announced that they added Polkadot to their portfolio.
The world of traditional finance will inevitably merge, and ultimately become engulfed by the internet of value. We will soon come to a point where many realise the advantages of doing an ICO over an IPO.