Earlybird's view
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Earlybird's view

Web3 DevTools in 2023: Leapfrogging Challenges to Widespread Adoption

By Cécile Tréboit, Investment Team, Earlybird Digital West, with input from Dr. Andre Retterath, Partner, Earlybird Digital West

the past year, we witnessed an impressive growth in the number of investments in web3 infrastructure, and particularly in the developer tooling space. Data and infrastructure represented $2.97 billion of all web3 venture investment in Q2 2022 — a 33% share. Interestingly, more than 50% of these deals occurred at the pre-seed stage, which indicates that it is still early days.

At Earlybird, we have developed comprehensive knowledge and thankfully partnered with a range of category-defining founders in web2 developer and data tooling. Since diving deeper into web3 in 2017, and currently doubling down our efforts on the space – convinced by the impact this batch of new technologies can have– we asked ourselves: What are the growth drivers in this new sector and what are the challenges ahead to ultimately onboard the rest of the world to web3?

To date, growth in the web3 tech stack has been mainly due to reward and incentivisation mechanisms allowed by these technologies. As the market develops, so will the need to improve accessibility, interoperability and security of the tools to finally onboard the masses.

We will start by explaining the basics, so for those already familiar with web3 concepts, please feel free to head directly to our 2023 predictions.

Let’s dive in!

The path towards web3

Today’s developer stack consists of specific batches of programming languages, libraries, and Integrated Development Environments (IDEs). The typical value chain usually goes from a centralized database, to data extraction and decoding, structuring and preprocessing, indexing, querying and exploitation that is then sent to web browsers (Ajax or Javascript), allowing for dynamic updates.

This interactive aspect with the end-user is the core difference between “web1” (first stage of World Wide Web i.e. static web pages, 1991–2004) and “web2”. In web2, content responds to user input, allowing for user engagement and, by extension, for a transition from traditional computer usage to mass participation. Therefore, one could summarize web1 as “read” and web2 as “read and write”.

As a further evolution, the 2009 bitcoin blockchain breakthrough and the rise of related technologies led to the notion of “web3”, which finds its roots in Ethereum and its Virtual Machine (EVM). Although reportedly first conceptualized in 2014 by Gavin Wood — one of the founders of Ethereum — web3 actually started to see real momentum in 2021–2022.

Permissionless and reward mechanisms accelerate innovation

What characterizes web3 is ownership: this derives from decentralization and token-based economics, allowed by blockchain technologies. Users are not only interacting with the web, they also own parts of it.

Indeed, the ecosystem of applications built on web3 allows for greater alignment of interests (collaborative governance) and transparency (open source and no third party control). Some experts even talk about hyperstructures, “crypto protocols that can run for free and forever, without maintenance, interruption or intermediaries”, which opens the path to the captivating concept of having public products or goods, functioning independently while rewarding participants and builders. Consequently, web3 is then “read, write, and own”.

The web2 tech stack’s evolution has been quite slow, as software gradually became ubiquitous and developers began to generate better tooling. In web3, the permissionless and trustless aspects allow for faster building.

Charles Naut, co-founder of Rain, explains that it is: “really allowing innovation to accelerate faster than we’ve seen in web2 because we aren’t building silos anymore. We’re actually building blocks and foundations that anyone can build on top of.”

Although web2 already had an open source component, web3 takes the best of this and adds clear financial incentives through tokenomics — rewarding contributors and punishing poor behavior. The path towards true crypto economic sustainability in the future will rely on those tokenomics designs.

As Jump Crypto states in their article Token for serious people, “for the last two years, many protocols have built tokenomic models that increasingly incentivize short-term outcomes over long-term sustainability.” and “design mechanisms that do not align compensation tend to destroy long-term value, especially when interacting with feedback loop”.

Validators and miners are then incentivised to sustain the core infrastructure on which developers build decentralized applications (dApps).

Complexity, costs, and lack of interoperability of the current web3 stack

A report from Electric Capital states that there were only 23,343 monthly active developers in web3 in 2022. This number has already multiplied 9x since 2017, and continues to grow exponentially. According to the same report, 65% of these active developers in web3 joined in 2021. Recent numbers reveal still some impediments to developing in web3 with an average 9,000 weekly active developers in 2022.

Apart from the transition to web3 often requiring one to learn new programming languages such as Solidity, Move or Cairo, the low number of developers can mainly be explained by a lack of proper tooling and infrastructure to build in web3. Other adoption barriers are the costs implied when building (storage, indexing), the security and the lack of interoperability between the different chains — especially layer 1s — which creates separate groups of developers linked to different ecosystems and implies different tooling.

While web2 can be considered a mere evolution of web1, the difference web3 brings happens on the back-end. Web3 front-end development is accomplished via usual web2 tools or libraries, like React or Figma. Web3 back-end however relies on blockchains; this implies a true need for new developer tools or web3 primitives, like wallets.

The web3 developer stack

Today’s web3 tech stack consists of different layers which we regrouped in four main blocks: network, infrastructure, developer tools and app enablement.

As a first layer, programmable blockchains allow trustless and permissionless access for developers. Secondly, tools and other layers of infrastructure come on top. For instance, in order for developers to read and write data on blockchains, nodes (blocks where smart contracts are stored) need to be run, and most utilize node providers such as Alchemy or Infura.

To interact in a proper way and to build and integrate proper decentralized applications, developers use web3 specific software development kits (SDKs) and application programming interfaces (APIs). These are in turn completed by front-end components — which, as mentioned above, are similar to the web2 stack, apart from libraries (i.e Ether.js, Web3.js, etc.). Developers can then finalyse dApps with vertical enablers, such as Freeverse for developing enhanced utility NFTs.

Below is a non-exhaustive overview of the web3 developer stack we curated in the past months:

What’s ahead — accessibility, interoperability, security

As the market evolves, we at Earlybird see great potential for the spots to still fill in the web3 developer stack. Tools will be built in order to solve current challenges for onboarding the rest of the web3 sector. Moreover, new web3 layers and technologies keep emerging daily, which will also drive the market dynamics in the coming years.

Lack of accessibility exists both for the developers & the end-users

Aside from the education and academies offered by most of the ecosystems and crypto players like Moralis or Buildspace, or edtech companies such as Rabbithole, Stack3 or Hundo, we observe the rise of no-code/low-code tools for the sake of simplifying web2 developers’ journey into the space. Other resources include tools that allow for building through web2 code, such as Vyper or Apeworx. The emergence of smart contract standards also facilitates frictionless development.

This year, we believe a new wave of verticalized, Large Language Models (LLMs) powered solutions such as Copilot will assist in code writing and bug hunting, as well as “as-a-service” companies may provide the ability for Dapp developers to launch their own layer 2 (chains on top of layer 1 to improve performance and scalability).

As for end-users, the UX of wallets allowing self-custody of digital assets while managing your own private key, is still the major blocker. This year, we hope to see some advancements in account abstraction: this is a paradigm that turns a user account into a smart contract, making it programmable. Therefore, account abstraction could allow developers to significantly improve end-user experience. Although Ethereum developers are working on enabling this for their ecosystem, some layer 2 are also accelerating on the topic, such as Starknet or zkSync seem further ahead on the topic. We also see some room for decentralized self-custodial or semi-custodial wallets.

In a recent article, Julien Niset, founder of Argent.xyz (a smart contract wallet), says account abstraction: “moves crypto from the current approach of one-account-fits-all, where someone can lose everything with a small mistake, to a future where an account can be tailored to someone’s needs”.

How will interoperability unfold

In 2023, we see decentralization accelerate across all layers of the web3 dev stack, with tooling adapted to decentralized nodes or validator infrastructure such as Obol Network, or decentralized servers and front-ends with companies like Urbit or Dappnet. If some layers like general compute, data storage or indexing may already have a major decentralized player, we believe it is still possible to identify improvements and build a legit competitor. We also hope to see further advancement through decentralized Postgres, freeing up writing on a client side web3 decentralized app, with a familiar interface and enterprise-grade performance guarantee (such as low latency).

As scaling technologies arise and the overall market matures, the cheaper it becomes to build on chain. Until now, ‘gas fees’ were mainly due to blockchain’s congestion. But there have been numerous app-chains and layer 2 and 3 popping up, adding to over a thousand existing chains. The blockchain trilemma and the choice between using an optimistic or a zero-knowledge proof rollup illustrates that, so far, an arbitrage had to be made between having more decentralization, scalability or security when building.

Source: Ledger

We will see more zero-knowledge technology adoption and use cases in 2023 and therefore a development of related tooling, with projects like kakarot.org developing an Ethereum Virtual Machine written in Cairo (Starknet programming language).

More cross-chain tooling pushing for interoperability and addressing liquidity fragmentation (spread between exchanges and chains) is necessary, with hopefully stronger security. Here, some companies like Herodotus.dev or Socket.tech started offering relevant solutions.

Filling the security gap

Despite fast growth of web3 infrastructure and tooling, security tooling did not follow accordingly and cross-chain bridges were revealed to be extremely vulnerable. We will see new solutions emerge to solve this in 2023. Looking ahead, community auditing and protocols should flourish as well as smart contract monitoring and testing companies, potentially leveraging artificial intelligence. Major players like Forta.network or Gauntlet are being challenged by companies like apostro.xyz or Chaos Labs.

In 2023, we foresee upgrades at different levels of the current stack to improve the lack of accessibility, interoperability and security of the blockchain technology and related apps. This should facilitate web3 developers’ jobs and further down the line and more web3 mass adoption.

This developer stack research naturally led us to also dig into web3 data tools: the “reading” layer and analytics; it’s another fascinating yet very early market. This will be the topic of another article exploring use cases such as web3 growth playbook. In the meantime, happy to get your feedback on this post to see if we missed something and how you see the future of the web3 dev stack.

Reach out to Cecile on LinkedIn & Twitter and Andre on LinkedIn & Twitter.

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