Charting the Ongoing Debate on Web3 Use Cases
And what it means for web3-curious marketers & brands
Blame the looming economic downturn, or perhaps just the bad vibes; the music seems to have stopped at web3 party this month.
Since early May, more than $700 billion has been wiped out in the ongoing round of crypto market crash, the New York Times estimates, plunging crypto investors into huge losses and forcing web3 companies to slash costs. Last week alone, more than $200 billion worth of value was erased from the crypto market in a day as stock sell-off intensified, leading many to declare that the “crypto winter” has arrived. The market value for both Bitcoin and Ether are down about 30% in the past seven days. Every major player in the DeFi ecosystem took a significant hit, Coinbase has lost 85% of its value while Three Arrows Capital, a crypto hedge fund, plunge into bankruptcy and liquidation this week. Even celebrities that got on the web3 bandwagon have begun quietly deleting their NFT profile pictures.
When the buzz dies down, doubt comes in. With market confidence in crypto and, by extension, web3 technologies clearly shaken, the web3 skeptics suddenly gained a lot more traction over the past few weeks, especially around the questioning of the legitimacy of the use cases that web3 proponents believe blockchain will unlock.
It also didn’t help that two of crypto’s biggest flag bearers — Packy McCormick, the investor and writer behind popular crypto newsletter Not Boring, and Marc Andreessen of the a16z fame — both recently struggled in online interviews to articulate the use cases for web3. Both instances are neatly summarized by Charlie Warzel in his Galaxy Brain newsletter for The Atlantic, and clips of those two interviews have circulated widely online.
In both instances, the key to this “web3 use case” debate boils down to a central question: why is doing X on blockchain better than not?
To elaborate, both interviewers pushed McCormick and Andreessen to come up with a concrete example of why a given problem might be better solved with a blockchain-based project than the existing solutions provided by the centralized web2 infrastructure? Unfortunately, both failed to offer a compelling example, resorting instead to vague “crypto boosterism” talks before conceding that the web3 stage is still in the early stages of development. In the end, most examples essentially come down to “tradable loyalty programs via tokens,” which prompted Warzel to ask: is this marginal difference between [web3] technology and the current way we do things the major innovation here?
Playing the devil’s advocate here for a second — perhaps being too early is just the issue here. After all, when the iPhone first launched in January 2007, few would have foreseen the mobile revolution that took the world by storm — the App Store was not introduced to iPhones until the summer of 2008 to kick off the “app economy.” In terms of web3, we are not even in the iPhone era yet; Just like someone using a Palm PDA back then could never have articulated the myriad of use cases for a smartphone today, perhaps it’s only natural that seemingly no one, not even the two most prominent thought leaders in web3 investment, could quite articulate the web3 use cases yet.
Well, almost no one. Since the two clips started circulating on social media and drawing more tech analysts and commentators into the debate, many have offered their takes on web3’s hypothetically revolutionary use cases. Among them, the loudest, and most confident, contingent seems to be those believing that web3 will supercharge the creator economy by revolutionizing the way that content is distributed and monetized on the web. Here’s famed analyst Ben Thompson in one of his recent Stratechery daily updates:
I have been and continue to maintain that there are real use cases for blockchains, and I just laid out the two big benefits for creators above: independence and interoperability.
User identifiers and their associated entitlements could also be written to a blockchain. This would enable three things:
First, creators would have full independence from any one centralized platform; their record of subscribers would be permanent and immutable.
Second, subscribers would have full independence from creators; their record of entitlements would similarly be permanent and immutable.
Third, anyone, from big platforms to other creators, could access those subscription records, and offer whatever benefits they choose.
In short, if there is ever going to be a way for the big platforms to effectively work together to the benefit of individual creators, it will have to be brokered by some sort of neutral entity that isn’t competitive with or beholden to those platforms; neutrality and independence is exactly what blockchains are uniquely suited to provide.
This stance on using blockchain to build an open, distributed network for creators to directly monetize their content from their fans is one aligned with the original ideas that many had hypothesized when I wrote about blockchain’s impact on the media industry back in 2017. Yet, five years later, the creator economy is still concentrated on web2 applications and social platforms. If web3 proponents could envision a way to revolutionize content distribution with a distributed network, why has no one built one yet?
The disconnect here may be explained by the fact that web3 is never meant to replace web2 wholesale, or at least not at its current stage of development. As Li Jin, cofounder of VariantFund (another crypto hedge fund) elucidates in a Tweet thread, the web2-era creator economy is mostly monetized via “services or time: advertising, live streaming, patronage, memberships, courses, etc.” because digital content is infinitely duplicatable and therefore lacks scarcity. Web3 technologies, NFTs in particular, can help create the digital scarcity required for creators to monetize their content directly and get compensated when their content gets copied or remixed. Moreover, Jin astutely pointed out that “web3 monetization is geared at superfans, and is additive to web2 models,” which refutes a fundamental presumption in this ongoing debate on web3 use cases.
Of course, crypto skeptics would argue that despite the promises of building an open, transparent, and decentralized internet, the current infrastructure for web3 is just as centralized as its web2 counterpart. Many decentralized apps (dApps) use APIs to connect to blockchains like Ethereum rather than connect directly themselves, and the market has already consolidated around two providers, Alechemy and Infura, that power the bulk of dApps on Ethereum, the most popular blockchain for software developers. Recent research by ChainAnlysis also found that, across several major DAOs, less than 1% of all holders have 90% of the voting power. So, even if someone did manage to build a web3 content network today, crypto critics would likely counter that it is built on centralized networks in order to scale.
In addition, the skeptics point to startups like Comradery, which seeks to construct a user-controlled version of Patreon to help creators directly monetize without resorting to the blockchain. Perhaps the road to web3’s future is by diffusing its equalitarian philosophy into our web2 reality and building better services on centralized networks, but guided by equal-access/ownership principles, to serve existing use cases.
Still, some crypto believers are staying on the wagon. The so-called “NFT summer” in New York is reportedly in full swing amid the early days of crypto winter, with NFT galleries and crypto launch events and token-gated events popping up all over the city.
Perhaps more remarkably, amid all the back-and-forth and market crash, Gen Z & Millennial’s belief in crypto and NFTs have not wavered much. YPulse data comparing pre-crash and post-crash sentiments show that young consumers haven’t given up on crypto, with the majority still believing that crypto and other digital investments are the future. Ultimately, these generations see digital assets as long-term investments and are still interested in crypto payments.
There’s no denying that over the past two years, the “web3 boosterism” got fast tracked by the pandemic-triggered DiFi investment frenzy, and web3 advocates started over-promising the moon before the rocket was even built. This ongoing debate, therefore, is a healthy market correction on a potentially revolutionary, but overhyped, innovation territory. For web3-curious brands and marketers, now is the time to tread lightly.
NFTs and other tokenized digital collectables are understandably still rather popular with btands looking to slap a sexy “web3” label on their campaigns. Macy’s just launched a Discord channel with a new NFT series for a 4th of July campaign, while Lowe’s released a limited-edition NFT collection in Decentraland as part of its web3 experimentation.
For now, web3 is a tool that makes sense for sectors like music and sports fandoms where collectables and digital goods were already part of those industries’ ecosystem before NFTs crashed onto the scene. Otherwise, brands really have to ask themselves: do we really need to use blockchain for this?
- Days after his public defeat, McCormick would pen two lengthy Not Boring posts laying out his vision for web3 use cases, offering up a number of companies that are doing blockchain-based projects he finds useful. Neither posts, as Warzel sums it up, “feel like … being DDoS’d by marketing language, needless complexity, and vague future-casting.”