5 Predictions for Web3 in 2023

2022 was a wild ride in Crypto and web3.?While the sector hit the mainstream and showed dozens of new uses cases, prices crashed in concert with the tech stock market selloff and the fourth quarter was dominated by the massive fraud at FTX.?I recently reviewed my predictions for last year here.?The tl;dr is that I gave myself a C- grade with some good strategic calls but I missed the macro move.

1?? Looking forward to the new year, I think it will be a Year of Firsts.?

I’ve written before about how big I think the web3 gaming sector could be.?Amazing talent from top gaming studios have quit their jobs, raised serious VC money, and are going to be launching new games in 2023.?I recently heard Chris Dixon on a podcast say that more than half of the startups from A16Z Crypto’s portfolio are not yet live with their first products.?They are big players in web3 gaming.?Some really cool stuff is coming this year.?We’ll see our first big web3 gaming hit in the U.S.?A game will breakout to millions of players and will hit the zeitgeist.?Top contender from the Beyond The Game Network portfolio is Artie, who launched a fun beer pong game played with cute NFT avatars.

Outside of gaming, I expect a bunch of other firsts in web3.?I believe we’ll see a Top 50 music artist go all-in with web3 tools.?After the Taylor Swift ticket debacle, I’ve seen tons of people talking about how an onchain fan club program could’ve made for a much better experience.?There are a bunch of startups trying to make this happen.?And Ticketmaster even said they are going to experiment in the space with Dapper Labs.?Look for someone big, like Taylor Swift big, to take the leap and embrace web3.

Similarly, another first I am looking for is a breakthrough hit in the sports space around ticketing or fan clubs.?Sports leagues have made some good money with NBA Top Shot and Sorare.?European football clubs have experimented with fan tokens via Socios.?A league or team in the U.S. is going to try using NFT fan club passes or onchain tickets or a fan token reward system in a serious way this year. And I think it’ll work.

2?? The next big prediction for 2023 is that we will finally see some regulatory clarity here in the U.S. for the sector.?Brian Armstrong, CEO of Coinbase, put out an excellent piece on this subject, and I am with him on most of this.?

I think the first area tackled will be stablecoins.?This is a must do for the government.?I don’t care if it is a bill from Congress or an SEC ruling, but it must happen before another Terra/Luna wipes out billions.?I believe stablecoins will get regulated like money market funds.?They will have to register with the SEC to sell to U.S. consumers.?They will be restricted to owning only high quality assets. They will have to report their holdings and will be audited frequently by reputable firms in the U.S.?They will have to mark-to-market their assets.?If they don’t follow these rules, then they won’t be able to call themselves stablecoins in the United States.

Next up will be rules for firms that custody assets in the space.?The average consumer does not distinguish between Schwab or Fidelity and Coinbase.?When a person deposits money with Coinbase to buy Crypto, they expect that these assets are segregated and protected.?They may even believe they are covered by a government insurance program like the SIPC for stockbrokers.?This needs to be addressed fast, and again it can come from Congress or the SEC or the CFTC.?If you look like a broker, then you need to either by regulated this way by the SEC/FINRA or maybe as a Futures Clearing Merchant (FCM) by the CFTC.?I really don’t care which one, but it can’t be neither and we don’t have time for a new entity specific to Crypto to get spun up. I think one of these options will be implemented this year.?If you are holding onto customer assets, get ready to be properly regulated in the U.S.

I would love to predict a clear ruling on what is and isn’t a security under U.S. laws, both for crypto tokens and NFTs.?Unfortunately, I don’t think this is coming in 2023.?Maybe the answer to which oversight comes for Crypto brokers will somehow cover this, but I doubt it.?The SEC might try a safe harbor set of questions, but that would be bad news for the industry.?I would guess most tokens would end up as securities in that analysis.?Maybe this gets solved in 2024.?

3?? The macro landscape will improve by year end.?I’m not in the doom and gloom camp for 2023.?I’ve heard lots of people predict a deep recession that will last 18 months or more.?I just don’t see it.?In my daily life, everywhere I go it feels like things are fine.?Restaurants are crowded, so are hotels and flights. The malls were packed during the holidays.?There are tons of jobs available, albeit many are less attractive options in retail and healthcare.?

I can see the market taking some more hits as the lingering effects of inflation and job cuts hit, but I don’t see a big meltdown from here.?I think the Fed is finally ahead of inflation and will be able to stop raising rates soon, and I’m hopeful that things are looking up in the second half of the year.?Against that macro backdrop, I’m expecting some recovery to the Crypto market and the broader tech sector by year-end.?I’m most nervous about this prediction, given the high delta of potential options, but I’m putting it on the books for 2023.

4?? Collectibles struggle, while community and ongoing utility win.?Profile picture projects (PFP) like Bored Apes and Cryptopunks got crushed with the Crypto market selloff, down 75%+ in 2022.?While they offered some cool factor and limited utility, I don’t see those recovering their all-time high prices in 2023.?For PFP projects to succeed, they are going to have to function as access passes to clubs or groups that people feel a deep connection to.?They can’t just be some high dollar flex to show how rich a person is.?And the celebs who supported these projects are learning that it is one thing to promote a sports drink or sneaker, and a whole other thing to push a financial asset.

I love what Gary Vaynerchuk and his VeeFriends are doing.?Knights of Degen is a community I’ve been a part of since launch. They bring together sports gamblers and have done great events, contests, media, and more.?Others are finding new ways to drive utility. Check out this post I wrote for more.

Similarly, NBA Top Shot got crushed last year, and I don’t see how it can come back.?There is limited utility to these collectible moments.?Maybe Dapper Labs can rebuild these into some type of playable assets for a basketball simulation video game or a fantasy game, but I’m not sure that is in the cards.?I’m much more impressed with DraftKings Reignmaker program, which I reviewed here.?I’ve been playing the new NBA fantasy game from Sorare too.?I don’t love fantasy basketball, but they done a good job with this.?I think these types of programs will continue to grow and more cool fantasy or prediction experiences around sports are coming in 2023.

5??Ventures capital firms will continue to invest in web3.?Funding dropped off in 2022 as the markets tumbled, but VCs kept writing checks.?I believe as the macro environment improves, we will see solid investment in the sector in 2023.?Definitely a bounce from the levels seen last year.?

I think VCs will focus on more traditional equity deals and will be less interested in token deals unless they are for L1 or L2 protocols.?Everyone in the space seemed to be pushing tokens to quickly return money to investors and get founders and early adopters rich.?These types of deals will have higher regulatory risk, and I think they will get less airtime this year.?If you invest in the sector, you’ll have to wait for an IPO or a sale of the company to get your cash back, just like everywhere else in tech.

I also think we will see a ton of web3 startups sell out to competitors in acquihire transactions. A lot of talented people jumped into the space in 2021 and 2022, and many were unable to raise funding before the market turned.?They have typically built some cool tech and might have a solid user base or community.?Instead of shutting down, they will merge with web3 startups that have cash in the bank, and they will be stronger together.?We’ve seen a few of these deals in late 2022, and founders I talk to are on the lookout for these opportunities.

??This was my longest post out of 100+ so far in this Crypto Executive Guide series.?I’ll wrap it up here.?2022 was a crazy year for web3, I’m looking for fewer volatile headlines and more building.?Check back with me in December to see if I can improve on that C- grade from last year.

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