World 3.0

Prelude

Markets are raining down. Crypto is crashing. We sit in the eye of the permabear eye of the storm and battered as we are we sometimes barely see the innovation being generated in its furious eyewalls.

But sometimes we do.

Web 3.0 transitioning to World 3.0

Innovation can be reactive. What is the background we are innovating against?

1. A persistently higher inflation and the upcoming recession
2. Decentralization
3. Diminishing trust in institutions

Inflation and recession

For several unspoken reasons central banks cannot say out loud that a recession is part of the game aimed at curbing inflation.

Similarly, they also cannot say that crypto is money and that it could be the base of a new monetary system, although sometimes something flashes beneath the surface:

CBDCs the Core of Future Monetary System: BIS Report: Crypto provides promising technological possibilities but cannot fulfill the high-level goals of a digital monetary system, according to the institution.

Indeed CB's mission is to mould expectations, and therefore everything is a never-ending, adaptive work in progress.

Nevertheless at this point it is almost self-evident that inflation will be persistent, rates will be over-hiked and therefore a recession is coming.

What are the consequences?

First of all, as I wrote in a previous post, the real bottom will be reached when earnings expectations will be cut on the yet-to-be-baked-in assumption of a recession and prices adjusted accordingly. As of mid June, forward estimates for the MSCI AC World Index dipped just 0.4% from this year's peak —?a rounding error.

In other words, we still have plenty of room for equities to go further down, let alone crypto currencies which could drop another 50% from here.

Second, and in my view more important, a persistent inflation completely changes the mindset which has characterised behaviours in the past decades.

A persistent higher inflation means we'll see much less leverage going forward in TradFi and DeFi alike. Leverage is what's been killing CeFi recently.

A persistent higher inflation combined with what Web 3 can now offer, means that disparate groups of people around the world might seek to re-organise local communities around purpose-driven DAOs and local crypto money. Micro-economies with their own decentralised digital communities and currencies, trading among themselves. Communities taking care of their own public goods. Experiments are sprouting out daily, everywhere.

Optimism example:

(Optimism is a Layer 2 built on Ethereum)

Revenue is distributed to fund public goods.

Communities benefit from all sorts of public goods, from education to city infrastructure to open source software. But many markets fail to provide adequate funding and support for those public goods. It’s here that Optimism takes a step forward, by building a sustainable funding source into the mechanisms of the network itself. Direct or auctioned sequencer revenue is distributed back to the ecosystem primarily through Retroactive Public Goods Funding. This creates strong incentives for individuals to build for the public good of the Optimism Collective.

Indeed we could end up in a world where one might be part of many different communities (local and global) and use a plethora of different types of crypto currencies: city coins for the local community, $USDC, $FRAX CBDCs and more for international settlements, crypto carbon tokens to trade carbon credits; the list can go on ad infinitum.

A persistent higher inflation combined with what Web 3 can now offer also means that we will move faster towards the tokenization of everything. This will unlock latent value in innumerable, currently out of the market assets, which will then be used also as new collaterals thus generating additional, potentially massive economic value and an additional GDP layer.

Finally, a persistent higher inflation means the inequality gap will probably widen as inflation normally hits the lower income population harder. Web 3 could again mitigate or even revert this negative externality by spreading ownership more evenly among the population and by realising the untapped value of yet non tokenised, illiquid assets.

Think of Uber: what if Uber was a web3 company and had issued tokens to all of its drivers? Tokens which could be traded and gave access to a share of the overall profit of the company instead of?that profit going to the usual?top 10%?

Spread ownership and new ways of working will also mean that work will become more fractionalized, nimble and productive since people will mainly focus on what they do best.

Decentralization

Premise: at this stage of human evolution pure decentralisation does not and cannot exist. There always are humans behind every single decentralised project. It's then a question of degrees of human intervention rather than a binary proposition. Centralised Coinbase has 10x the number of employees of the mirroring decentralised Uniswap. But the latter still employs people.

That said, starting with the early internet we have witnessed (some, participated to) three phases:

1. Web1: mainly decentralised. Very little revenue generated by participants. World globalisation accelerating.
2. Web2: mainly centralised. Significant revenue generated. Reign of oligopolies (Facebook, Amazon, Youtube, Amazon etc) which concentrated power and money. Centralisation of work (offices, traditional jobs). World globalisation in full swing. Inequality gap broadening.
3. Web3: mainly decentralised. Geo-globalisation retreating but interconnectivity exploding. Significant revenue generated. New business models created, in part enabled by previously impossible micro digital payments. Decentralised, spread ownership and revenue. Trustless transactions. Immutability. Ownership of one's own data (which kills Web2's business models). Full interoperability (which again kills Web2's business models). A nascent new financial system. Decentralisation of work (hybrid, remote, Metaverses). Significant decentralisation of decision-making. Exponential, small scale experimentation with new governing models (DAOs, governing tokens and much more) with the aim of possibly creating new, larger scale, more functional frameworks better suited to govern modern democracies (think of the constant impasse in USA's politics!). Open-sourcing of power in a borderless world where developers, politicians, lobbyists, creators can easily form meta-organisations beyond and above states whose historic definition is becoming irrelevant. Open-sourcing of knowledge and work. Multiple crypto currencies co-existing. Tokenisation of everything. Web3 applications in real world which will onboard the first billion of people to this new World 3.0.

Diminishing trust in institutions

I will only link here this article by Bloomberg, as one representing thousands of similar commentaries:

The Age of Credibility for Central Banks Is Over: Inflation blunders have destroyed the trust that’s anchored the global financial system since the end of the gold standard.

We need to re-establish trust. The new World3 forming, empowered by the trustless Web3, can provide the tools desperately needed to evolve peacefully from the current heavily imbalanced societies to a new fairer system. As contradictory as it may sound, trustless tools, platforms and entities can greatly improve the chances of re-establishing trust at the level where it's really needed.