The underlying value of Web3 is free market + credit machine.
How should we define Web3?
For important concepts, it is necessary for us to define the next definition according to our own understanding.
In my opinion, Web3 is a general term or abstract reference for a new business model or collaborative relationship, and the bottom layer of this collaborative relationship or business paradigm is the key technology composed of the Internet, cryptography and distributed computing – Blockchain.
The essence of blockchain is a large data table readable by global Internet users, and the consensus mechanism determines who writes it (the term “big table”, borrowed from the words of Mr. Wang Jianshuo, is easy to understand).
Because this table is human-readable and difficult to tamper with, the cost of people reaching consensus based on it becomes very low, and trust arises.
Since Web3 is an abstract reference to a pattern, it must have rich observation and interpretation angles, and its specific definition varies from person to person.
For example, those who attach importance to personal sovereignty and data privacy will emphasize the role of Web3 in data equality, and believe that the main function of Web3 is to allow users to take back account (identity) and data sovereignty;
For example, those who are dissatisfied with the monopoly position of the Internet platform believe that Web3 has transformed the relationship between business and users. Users are not only consumers, but also owners of products, protocols, and platforms. They believe that Web3 is “readable” in Web2. , “Writable” (write), superimposed “own” (own);
Others believe that Web3 is more of an idea that promotes elasticity, openness, autonomy, transparency and decentralization, and DAO (Decentralized Autonomous Organization) is the best practice of this idea in human collaboration;
Of course, there are many people who think that Web3 is a bubble technology narrative, and its main use is to provide a medium (cryptocurrency) for speculators.
The above statement may be correct.
What Web3 is depends on what is important to the person who needs it, and then he/she will find a perspective that defines Web3 based on his/her own needs.
Just as a computer is a tool for statistics and calculations for a financial girl, it is a color screen for a TV series to an old lady who is retired at home. The definition of a computer as “an electronic device capable of processing data at high speed” is of little importance and meaning to them.
So, what is the most important observation angle for Web3 for investors?
I think we should start from two perspectives:
What underlying value does “Web3” provide economically and commercially?
How should a business project make good use of its value?
The underlying value of Web3: free market + credit machine
“In your opinion, what new value does Web3 provide relative to past Internet paradigms?”
This is the most frequently asked question at Mint Ventures during researcher interviews.
Before wanting to enter Web3 to do some long-term things – such as entrepreneurship, employment, investment – we should have a preliminary answer to this question.
When we talk about the differences between Web3 projects and regular Internet projects, the features that are often mentioned are:
The Web3 project introduces token incentives and attaches great importance to the economic model
The Web3 project is decentralized, and the business direction of its products is often determined by community governance
The Web3 project attaches great importance to sharing its project value with the community and users. Users can not only use the agreement but also “own the agreement”
The above features are indeed more common in Web3 projects, but in my opinion, they are not the underlying value of Web3, and they are not a good answer to “what new value does Web3 provide”.
because:
The previous Internet products are also very skilled in the design of economic incentives. The content aggregation project “Qutoutiao” (NASDAQ: QTT) has attracted a large number of users through “reading to make money” and successfully listed (although it has now declined); the design of the economic model is It is a good game of traditional online games. The online game “Fantasy Westward Journey” has been in operation for nearly 20 years and is still popular. The operation of its in-game props and currency system is a sample that many Gamefi will refer to when designing.
Decentralization is only a means, not an end; and the community voting mechanism with tokens is actually highly similar to the traditional shareholder meeting system.
If a user “owns the protocol” by holding a token, does holding a company’s stock mean “owning the company”? It’s actually far from that simple.
In the author’s opinion, Web3 is indeed a brand-new “paradigm”, which is not only about blockchain technology and the encryption products built on it, but also includes the corresponding trend of thought and innovation standards.
The core value provided by this new paradigm is: greater freedom and cheaper trust, and the value of the former (freedom) is amplified geometrically by the existence of the latter (trust).
“Freedom” has rich meanings in Web3, it includes at least:
- Freedom at the currency level: Create accounts freely, transfer money freely, and the property rights in the account are only owned by you, and it is difficult to be invaded by power.
- Freedom to collaborate and make contracts: freely enter into contracts with any person or project through smart contracts, resulting in transactions and collaborations.
- Freedom of identity account: Do not rely on the account system of the centralized organization, you can access various products with an anonymous address, and you can leave after use.
and more complex freedoms derived from the above freedoms:
- Freedom of product combination: Here, various items can be combined with each other in the form of Lego bricks to create newer services.
Freedom is also a trend of pursuing openness and transparency:
- Freedom of Fork code: The open source contract is advocated here. Naturally, fork and re-creation based on ready-made smart contracts have also appeared, which greatly reduces the development threshold of the project, and the product competition and iteration are getting faster and faster (of course, it also causes fork projects. pressure).
- Freedom of copyright opening: Many IP content projects try to adopt the CC0 standard to open IP copyright as public goods (Public Goods, refer to those resources that are not exclusively used, such as open knowledge).
It is precisely because of the existence of these “freedoms” that the blockchain-based Web3 world has created the largest free market in human society so far: as long as there is a network, you can access and participate anonymously.
The free market provides the basic conditions for the free flow of resources and the large-scale collaboration, production and innovation of people, but free market ≠economic prosperity and development.
Because the flow of resources and the collaborative innovation of people can only happen smoothly if the “transaction cost” is low enough.
The second underlying value provided by the Web3 paradigm is “cheaper trust”.
The traditional trust system relies on the judiciary, violent institutions, and customs and culture. These are the consensus of people’s cooperation and the mechanism for resolving differences.
Web3 provides a new trust system, which is based on the transparent public ledger of the blockchain, based on open source and checkable contract code, and based on unbreakable cryptography.
Based on this new trust system, people can interact with contracts and transfer money with confidence, simply issue their own artworks and confirm their rights, believing that their assets are difficult to be breached by power.
The investment institution a16z said that the blockchain is doing “the work of removing the gatekeeper”, and there are at least two meanings here:
Remove the gatekeepers that prevent people from accessing and building services, and give people back the “freedom”
Remove the bloated and bulky caregivers in the original trust system and replace them with a cheaper “trust” system
Based on vast freedom + cheap trust, an unprecedented large free market has emerged, which is the foundation of innovation and prosperity.
Of course, we need to realize that the vast freedom + cheap trust is not a one-step “ultimate state”, but with the improvement of infrastructure and the continuous iteration and evolution of product innovation.
In this process of continuous evolution, more freedom will be released under lower-cost trust, such as the L2 scheme based on ZK (zero-knowledge proof) technology, which increases capacity (reduces cost) while increasing privacy protection ( enhance freedom).
The application of the underlying value of Web3 in investment
The understanding of the underlying value of Web3 is very important in actual investment and can be said to be the starting point for us to view and evaluate projects.
My favorite question when evaluating a Web3 start-up project is: why is the project being done the Web3 way, and what problem does the blockchain solve in it?
If we think that “token incentives” are the characteristics and value of Web3, we will chase xx to earn projects, thinking that “all Internet products are worth redoing with xx to earn.”
If we think that “decentralization” is the main value of Web3, then we will find that many projects have not solved the original problems after decentralization, but have become worse.
And when we ask about the value of the project from the perspective of “freedom” and “trust”, we will find that the reason why many excellent projects develop well is often because of the correct application of the advantages of web3 “freedom” and “trust” :
Stablecoins allow people all over the world to complete cross-border transfers cheaply and quickly. As long as you keep your private keys, you don’t need to worry about someone stealing your assets (perhaps to exclude supervision, if you use a central For the first time, people experience the great freedom and efficiency at the level of currency transfer.
The loan protocol Compound allows people who can use the Internet in the world to freely deposit and withdraw assets. People do not need to open complex bank accounts and face cumbersome procedures. This is an unprecedented freedom of financial services; more importantly, This on-chain bank has no service outlets and a huge employee system. People trust it only because of its open source code and smart contracts. It is built based on the Web3 trust system, which greatly reduces the cost of trust.
Synthetix, a synthetic asset and derivatives platform, can theoretically create mirror assets of all financial assets, such as stocks, bonds, precious commodities, and derivatives, providing users with a wealth of trading options, which is the freedom to create financial products; and people Trust and trade such assets not because they are listed on the Nasdaq or CSE, but because of transparent underlying asset pledges, open source code, and oracles.
Excellent Web3 projects have found the huge deficiencies of traditional services in “freedom” and “trust”, so as to use the advantages of blockchain in both to provide more competitive solutions.
You might say that the above are all examples of DeFi (decentralized finance).
But in social, music, games, education, scientific research, politics, organizational management, and more, don’t there exist situations where there is insufficient freedom and the cost of trust is too high?
The same exists.
Waiting for the infrastructure to mature, waiting for the turbulent innovation and combination to collide in the right direction in the market competition, as long as the problem is identified and the correct posture is adopted, the best practices of Web3 business and society will appear in more fields one after another.
The power of Web3 comes not from invading old systems, but from new demands
We need to realize that Web3, as a new trust system, is not in opposition to the traditional trust system based on judiciary, customs, and centralized institutions. In the long run, it is a collaborative relationship, and each has its own application scenarios.
This means that some problems that look beautiful to be solved with Web3 are unnecessary and more expensive.
For example, the recently popular Refi (Regenerative Finance, recycling finance) concept is often discussed in the chain of traditional carbon credit points, and for example, the real estate chain that people often talk about, may all belong to this category at present.
The reason: both lack of demand and high cost.
In terms of demand, whether it is real estate or carbon credits, who is the demander on the chain? If there is no demand side, there will be no driving force introduced. The best example of introducing off-chain assets into the chain due to the huge demand is the USD stablecoin – the crypto natives need a stable currency medium, so they introduced the USD to the chain, and the scale of the USD stablecoin has been unparalleled since then.
In terms of cost, whether it is real estate or compliant carbon credits, they are all assets issued, circulated and confirmed based on the traditional credit system. How difficult is it to let go of the traditional credit system? And if regulators such as Verra and Gold Standard do not recognize the circulation of carbon credits that are on the chain, what is the role of carbon credit tokenization? If the Housing Authority does not register the property rights of the house you bought from others, what is the use of the other party transferring the NFT corresponding to the house to you?
It is good to return the assets ruled by the traditional credit system to the traditional. The real demand for Web3 does not come from the introduction of off-chain assets, but from the “reengineering” of valuable services and assets on the chain.
Yes, it doesn’t make much sense for artists to upload artworks created offline, but artists can use digital format when creating the next work (“online” is the basic condition of “on-chain”), and use NFT as a contract The medium was first released on Ethereum. This work was created based on the Web3 credit system and is a native on-chain asset.
Whether it is a business model or an asset, in the medium term, we are more optimistic about projects that are native to the Web3 credit system.
write at the end
The free market created by Web3 may be the largest incubation pool for future business innovation. Because innovation is most likely to emerge in systems where there is no hand of God and participants compete on an equal footing. In such a system, participants who rely on administrative monopoly to survive will be eliminated, leaving behind competitors who can identify needs, evolve desperately, and have an open mind.
This is the underlying reason why we believe in Web3.