Web 3.0 Predictions for 2024

[Disclaimer: No financial advice, wrote in less than 10 minutes (so I own the thoughts - no PR intended at all), edited minimally to share my authentic views, big believer that we are stepping in Technology Renaissance - someone can construe this as my bias. I can't help being excited about the future. I will share more about other emerging technologies in a separate note.]

FY24 will be a year of reckoning for the Web 3.0 / Blockchain / Digital Asset / Crypto space as all the four names by which this was fondly called by internet wizkids, geeks, compliance sensitive & degens, respectively - all their worlds will collide and merge into one big wave. We have fast chains (that don't crash), evolved technology components (middleware), a fairly mature regulatory framework (in multiple jurisdictions) & soaring prices due to macro (reducing interest rate regime) & micro lift (mature technology). Big boys like BlackRock & Fidelity are capitalizing on this opportunity through ETFs. Expect “everyone” to jump in at some point to have a slice of the pie.?

1. On Layer 1 & 2 :?

Rule of 3?

Top 3 players in a sector win, Top 3 tasks get completed in a list, etc etc. I just blindly follow the rule of Top 3 in my life. So, if you don't have it in you to be Top 3, you as well find the niche where you can be Top 3.

• Solana continues its lead as the largest ecosystem after Ethereum (and allies) - it has reached the tipping point. Congratulations are in order!
• Leakage from the Solana ecosystem as the major applications become more user-centric (their ambitions outgrow the limitations of Solana) and become chain agnostic. So, many major applications will shift to other chains (e.g. Solend to Sui). This is good - that means “abstraction” and “consumer-centric design” will gain traction. That is the point at which public blockchain-based applications onboard large swathes of users.
• This creates a space for both Blockchains (Near, Aptos, etc) and DAGs (Avalance, Sui, Fantom, etc.) to emerge as strong contenders. And there could be surprise swashbuckling heroes (like zkSync).?
• Ethereum + Layer 2s (Polygon, Arbitrum, Optimism, etc) are impossible to dislodge - they will get commoditized and superior tech with a large ecosystem that will eventually thrive.
• “Secure” EVM & Bridges will be extremely valuable - As liquidity will like to move through on-chain and off-chain (exchanges, OTC, Funds, Products, etc.) alike.
• DAG research will advance further as most DAGs are well capitalized upward of USD 300 mn plus raised by each of the chains. The collective raise should be well more than a billion.
• My eyes are firmly set on the 3rd position & the contenders - they will unlock 10x or more value from here.
• Those that are focused on niche Defi (Sei) or Gaming (ImmutableX) can be a potent force upsetting the larger players.

2. Middleware:

Unfortunately Top 2 - This is damn competitive; Doesn’t matter if you have more money you can't fit a square peg in a round hole!

The essential gear mesh between the application & Layer 1/2 has to cross the chasm. Two aspects when you are sandwiched between two extremely valuable layers -

• You can become the default toll gatekeeper - Here, I will limit my bet to the Top 2. Usually, in each of the categories, the winners have already emerged or are around the corner. Oracles - Chainlink; Indexing - Graph, Covalent ; Node infra - Infura, Quicknode ; Abstraction - Biconomy; ….. In FY24 - the leaders in these categories will become established and monoliths. There is a 100x opportunity here!
• You can easily become commoditized - It is expensive to service from both hands without a solid operating and revenue model. Most promising players will taper off and fade away. Capitalization & category of funds that have been invested into them don't matter. It is just not easy to keep grinding without necessary revenues over longer time frames.

3. Applications:

Top 3 & more - as consumer markets are deep and in crypto we have not even scratched the surface. So, regional plays, generation of consumers, etc., will play a big role.

• As Layer 1/2 and Middleware reach a certain level of maturity (have been through trials and tribulations across at least 2 deep bear cycles) - the action will sustainably shift to the application layer. I will give this up to two years as Layer 1/2 and Middleware have to reach a tipping point.
• There will be a churn in the application layer (if it has not already happened in the bear market) - “features and tools masquerading as applications” will die. My bet is on three categories:

1. Defi - Leverage and Perpetuals will be back in FY24 with a bang. Centralized applications (esp. in areas of Exchange, OTC, Payments, etc.) will do better than their decentralized counterparts. Liquid staking, Lending, and DEXs will see a major lift. 10 - 100x opportunity.
2. Gaming - Gamification (in the form of creative tokenomics & community engagement) has been the cornerstone of the crypto industry. This craft has been mastered over the past 8 years. The layering of immersive reality & need for gamers to own and transact their assets will spill over into the gaming arena as the incentive alignment happens due to the soaring prices of their respective tokens. This creates a category-level narrative and will eventually lead to the emergence of a USD 100 bn+ category. Most of these models will fail as the tide of the market turns around as I have not seen “a dynamic emission regulation model that is correlated with gamer engagement & onchain transaction activity”. This level of sophisticated treasury management will be cracked at some point with the help of AI / ML tools. We are a bit far away from the true convergence of Blockchain, AI/ML, and AR/VR. Expect 100x opportunities here!
3. RWA - This has been slow and boring - with eager eyes fixed on a lonely road for the past few years with few lone transactions here and there, setting the media printing presses on a roll and again dying down. With ETFs and regulated stablecoins (like USDC), this will change as it will legitimize and propel the tokenization industry. Licenses will be difficult to get, capital adequacy requirements will increase, and CAC will increase, thus, those with a first-mover advantage (economies of scale) and ability to drive deeper into institutional networks will succeed - the rest will be disappointments. This is a 10 - 50x opportunity.

Other aspects -

• The regulatory noose will continue to tighten. Poor governance and irresponsible behaviour have been masquerading as liberalism. The pushback by regulators will continue forever. And this is healthy for the growth of the industry as consumer protection has to take centre stage. Btw wasn’t this the ethos of Blockchain? We lost our way and a hard turn now is for the better!
• Eigen Layer to watch out for creating an industry standard for data. Ethereum and Eigen Layer will both win.
• BTC vs ETH - If high ETH gas fees is solved for, then deflation and institutional interest could catapult Ethereum to an exponential growth trajectory. BTC will reach its marginal utility at the end of this cycle so that the ETFs continue to flourish despite the market downturns.
• Privacy - Follow the talent for alpha - Matter Labs & Starkware. Parts of the privacy narrative are pure hype and will be a must-do for most chains, much like Tax apps were a fad when the IRS introduced norms - now they are a feature in most exchanges.
• Expect many airdrops as every new shiny project launches its token and vies for a new user.

Happy holidays! Happy alpha in FY24!