Thoughts on Web3 in 2022 and Predictions for 2023

On the face of it, 2022 has been a horrible year for Crypto;? the price of Bitcoin and Ethereum are down over 66% YTD, Terra Luna imploded bringing down several big hedge funds, Celsius mishandled consumer funds, and the fallout from FTX is still overhanging the industry in a giant mushroom cloud.? It is human nature to focus on the bad-stuff , which is probably put best by Elliot Carver, the fictional Media-Baron villain in the James Bond movie, Tomorrow Never Dies, who says "There's no news like bad news."

So as we approach the end of the year, AngelHub has been reflecting – whilst the traditional media devours every word of the non-fictional villains who once led FTX, Three-Arrows Capital and Terra Luna in a sea of minute-by-minute negativity - we would like to share our reflections and provide some much needed balance and long-term thinking.

The key message of #2022 has been Don’t Trust, Verify

• The failures and risks of #centralization was really brought home in 2022 as all the major failures have been caused by centralized entities, opacity and “key-person” points of failure
• Smart-contracts and #Web3 are the antidote to these problems, using open, transparent, immutable, public blockchains??
• The emphasis of Don’t Trust, Verify is on the investment world - where shortcuts in process and due diligence (as we wrote about here) have resulted in poor outcomes for investors and the wider Web3 ecosystem. With tighter controls and more Due Diligence, bad actors and actions can be rooted out at far earlier stages.

Clarity emerging in the Global Regulatory landscape:

• Much media attention has been focused on US regulation which is still largely being formalized, however strong work has been done in other jurisdictions notably European Union, The UK, Hong Kong, and Dubai to provide supportive regimes for Web3

Nike, Instagram, Starbucks, JP Morgan, Tiffany’s, Reddit and other big brands making moves into Web3 in 2022…. Probably nothing:

• Huge mainstream Brands have quickened their march into Web3 making serious and varied investments; JP Morgan using decentralized finance, Nike launched .SWOOSH which allows creators to co-create virtual creations, and Starbucks launched a loyalty points scheme on Web3.
• Whilst the overall NFT market was down, one of the biggest successes was a series of collectable avatars from Reddit.??
• The move towards mass-adoption for Web3 can now be accelerated from brands onboarding hundreds of millions of non-Web3 users ??

2022 was also the year of Digital and Physical Identity convergence:

• Fresh from the Digital Identity emergence with the rise of NFT PFP’s (NFTs that can be used as profile pictures) in 2021, one of the words of the year in 2022 is “Phygital” - bridging the gap between the physical world and the digital.
• As an example, Tiffany & Co released a limited edition of NFTs which can be redeemed for ultra-valuable (USD 50k) physical pendants exclusively for owners of the CryptoPunk NFT collection.
• BNV partnered with Coach, Vivienne Tam and Tommy Hilfiger to release a series of 3D digital collectibles.??
• Soulbound tokens are beginning to be rolled out as forms of on-chain identity and verification (We dedicate a section to these in our whitepaper), and ENS (Ethereum Name Service), which allow users a personalized wallet address on the Ethereum blockchain, spiked and saw over 575k users
• The number of identity-verified (i.e. KYC’d) crypto-currency users grew to over 320M, with 40% being in Asia, and the largest NFT sale was conducted by Yuga Labs in conjunction with Animoca Brands for the Bored Ape Yacht Club “The Otherside” Metaverse project, where users had to be KYC’d to participate.??

Huge technological innovations, What’s the Merge again?

• The huge improvement to the Ethereum chain is under-appreciated - Ethereum moved from Proof of Work to Proof of Stake in an event called The Merge in September, reducing Ethereum's energy consumption by ~99.95%. This impressive technical feat now means Ethereum is far more environmentally friendly
• The Ethereum RoadMap is moving rapidly onto its next stages making the network and thus the whole industry; more scalable, more secure, and more sustainable.???

And finally and importantly 2022 was a good year for AngelHub across the Web3 Vertical:

• We made new investments into Brand New Vision, Metakey, Klang Games, Village Studio Games, NeoSwap AI and Bunch, a follow on investment into Animoca, and have some exciting campaigns live for Azarus and Gryfyn.??
• Some existing investments were marked-up and exited??
• We wrote, illustrated and published our first White paper, gave presentations, hosted panels and appeared on podcasts??
• And we started our Digital Asset Team and then expanded our team in Hong Kong and abroad

??…. So what will 2023 bring??? - 10 predictions

??1. Web3 Games continue to grow and be a huge driver in Web3 adoption

• Gaming is experiencing a super-cycle driven in-part by massively positive demographics.
• Gaming is also the first mass-market use case for Web3, as Web3 elements within games and gaming ecosystems generate a win-win for players and game-creators alike.
• In 2023 these elements and games will bring new features and mechanics that will continue to captivate users. We believe this so much we backed the largest ecosystem in the space, Animoca Brands.???

?2. We will see huge opportunities in the intersection of Artificial Intelligence and Web3

• AI has also come on to be at the stage where it can be used to autogenerate text, video, sound and interactions. Companies such as OpenAI are showcasing the potential, which will have huge impacts for massive multiplayer games like SEED by Klang
• Blockchains are rich with data – Machine Learning models training on data generated on and off chain has fantastic use-cases as NeoSwap is showing

?3. Web3 becomes far more user friendly

• Along with the influx of non-Web3 brands into the space, the experience must evolve taking complexity away from the consumer
• We are seeing a new generation of companies working to improve upon this notably Gryfyn which is making the wallet experience far easier and more secure for users, which leads us to….

4. MetaMask’s position as the dominant wallet will fade

• MetaMask has long enjoyed monopoly like status as the go-to-wallet, but this will be under a big challenge in 2023, as the next generation of wallets like Gryfyn compete, existing wallets like Phantom move onto the Ethereum compatible chains, and backlash against MetaMask’s sister company Infura continues over user IP tracking of users??

5. NFT adoption will accelerate, being used for more “real world” use cases and representing ownership of different underlying assets??

• This year we saw property rights for a South Carolina House change hands as an NFT – in 2023 expect more, From concert tickets, to digital collectibles and in-game assets, as well as dynamic NFTs, the underlying technology makes NFTs an attractive option for many use cases
• Led by companies like Centrifuge and Mattereum (in partnership with NeoSwap) , initiatives are being developed to tokenise more real-world assets.????

?6. Decentralized Social Media will begin to take mainstream form

• Led by new primitives like Lens (a new protocol from Aave), Decentralised social media allow users to own their own personal data in ways that were not possible before, rather than concentrated power held by the likes of Meta, ByteDance and Twitter.
• These new primitives are composable, which allows other projects to build upon these initial base layers constantly improving the experience

7. The top 3-5 chains next year will be different to the ones today

• Ethereum still dominates on most financial metrics but the Polygon Chain has done a tremendous job in business development and capturing partnerships with new-entrants into the space
• As Solana suffers from the effects of FTX, other chains developed over the past few years with a strong user-acquisition strategy and a demonstrable niche have a huge opportunity here?????

?8. Stable Coin usage will grow and be more broad

• We are already seeing new stable coins developed by Top Tier DeFi projects (namely Aave and Curve) appear and we expect more.
• Central Bank Digital Currencies (CBDC’s) will launch, led by Digital Renminbi, Digital Krone and Digital Euro???

9. Decentralized Exchanges will eat further into market share of centralized equivalents (Binance, Kraken, Coinbase etc.)

• As trust decays in centralized institutions and user experience in Web3 becomes easier, with more and more users will move away from Coinbase/Binance etc. and into their Decentralized Equivalents such as Uniswap and Curve.?
• Indeed, Don’t just take it from us, the CEO of Binance, Changpeng Zhao, says it himself.??

10. Fundraising will be tough for Web3 companies

• Macroeconomic factors are not supportive for growth assets, with rising interest rates and high inflation
• Several sources of Later-stage capital have dried up and don’t want to deploy into Web3 post FTX??
• Early-Stage startups will struggle to attract capital like before and must operate leaner with increased runway
• But when times are tough, new winners will rise, much as the most successful companies in the latter 2000’s were born out of the tech crash of 2001 and financial crisis of 2008.???

And a final prediction…

11. More centralized entities will fail

• We are realists. The path towards progress is challenging, this is not something we take lightly.
• But projects that focus on building, with talented and hard-working teams, and founders with vision, will find success - undeterred from the outside forces.

Share your thoughts in the comments, would love to know what you think ??

#AngelHub #Web3 #DontTrustVerify