The Top 10 Trends Shaping The Web3 Ecosystem In 2023 If you are wondering what trends are shaping the Web3 ecosystem, look no further- this article is for you.
By Pierrick Ribes •
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If you are wondering what trends are shaping the Web3 ecosystem, look no further- this article is for you.
Come and explore these top trends as we dive into the gaming revolution, non-fungible tokens (NFTs) shifting from speculation to utility, and the revival of decentralized exchanges, among so much more:
TREND #1 | BRINGING GAMERS TO WEB3
The emergence of AAA games -i.e. video games produced and distributed by a mid-sized or major publisher- is believed to be a crucial factor in driving mainstream adoption, which starts by convincing real gamers. Most of the blockchain games implemented to date were with a play-to-earn (P2E) model that made waves in 2021 and 2022. However, this model also shed light on an unsustainable model, putting emphasis on making profits, while ignoring the fun part. This made many gamers highly skeptical of Web3 games to date, viewing them as potential scams, or attempts to prioritize profit over gameplay.
A 2022 report by the Blockchain Game Alliance (BGA) showed that poor gameplay and complex onboarding were the main challenges hindering mass adoption. One of the reasons for this is the very immature technology making it complex to develop games in a Web3 environment. Gaming infrastructure Web3 projects and gaming studios are working to address these challenges to enable the creation of AAA games with immersive gameplay, engaging storylines, and enticing rewards systems to attract a broader audience to the Web3 gaming space. Brace yourself for some potentially exciting games in 2023!
TREND #2 | FROM SPECULATION TO UTILITY: NFTS
In early 2021, the world witnessed a surge in interest in NFTs, fueled by high-profile digital art and collectible sales. The sale of Beeple's NFT artwork for a staggering US$69.3 million at Christie's auction house marked a pivotal moment, bringing crypto and NFTs into mainstream culture. The trading volume of NFTs experienced remarkable growth, skyrocketing from $200 million in 2020, to an astounding $13.9 billion in the first quarter of 2022. For that value to be sustainable, it is essential for the NFT market to offer more than mere hype, and a fear of missing out, leading this initial phase of NFTs, dominated by profit and speculation, to evolve towards utility.
As we move forward, the practical applications of tokens are gaining prominence over their financial appeal. These so-called "utility NFTs" have the potential to be utilized across numerous industries. Many thought leaders in the Web3 and crypto space including Joseph Lubin, co-founder of Ethereum and founder of Consensys has said that blockchain technology, and especially NFTs, provide a paradigm shift where a new trust foundation for the planet is being built, allowing businesses to be disintermediated. Any industry that values trust can benefit from that new trust infrastructure, moving away from a world of subjective trust where we used to rely on intermediaries to provide trust in different situations in different industries, to a world of automated trusted and guaranteed execution.
Although the initial hype around NFTs may have cooled also driven by the start of the bear market that saw a 67.3% drawdown of total NFT trading volume from the all-year high of $5.79 billion in January 2022, it is evident that the technology and its use cases are maturing. Utility NFTs demonstrate their potential to reshape industries, indicating that we are witnessing the early stages of a significant shift.
Source: Lucidity Insights
TREND #3 | THE REVIVAL OF DECENTRALIZED EXCHANGES
The revival of decentralized exchanges (DEXs) has been an exciting development in the world of decentralized finance (DeFi) and blockchain technology. In 2022, several centralized exchanges (CEXs) like FTX shut down, leaving users apprehensive about transparency and control, as many CEXs have failed to secure their customers' funds adequately. This has led to a resurgence of interest in DEXs, as they offer a more secure and transparent alternative to CEXs.
DEXs are the decentralized application (dApp) alternative to trading platforms, where users can trade cryptocurrencies peer-to-peer without a need for an intermediary. DEXs are a vital component of DeFi, and they provide greater security, privacy, and control over funds for users. Unfortunately, compared to CEXs, DEXs still lack the scalability, ease of use, and overall "user support" to attract a mainstream user base, leading to liquidity challenges, despite users being more and more drawn to the appeal of the autonomy and the permission-less nature of DEXs.
Addressing liquidity, scalability, and providing regulatory clarity could also lead institutional investors to consider DEXs, which is currently still not the case. As DEXs and supporting projects work on improving the trading experience and liquidity, such as staking projects, we can expect more and more users to shift to more decentralized, secure, and transparent platforms such as PancakeSwap, Uniswap and dYdX.
TREND #4 | INCREASED TOKENIZATION OF REAL-WORLD ASSETS: WHEN TRADFI MEETS DEFI
Although crypto is an emerging asset class, it currently operates independently from other traditional markets that have a total addressable market in the trillions. With the advancement of the token-based economy, there is growing interest in utilizing existing blockchain and DeFi technology to improve the supply chain visibility of real-world assets (RWAs) and provide businesses with easier access to credit. Currently, the RWA market is still in its early stages, with a gross value locked, including the amount borrowed, of only $193 million.
Real-world assets are tangible assets, such as real estate, art, and commodities, and their tokenization allows them to be converted into digital tokens that can be traded on the blockchain, making it easier to:
- Increase liquidity and transfer of ownership, which has historically been a challenge for traditional asset classes such as real estate and art. Tokenization can help to lower transaction costs and increase ease of property ownership and management. This can enable greater access to these asset classes for a wider range of investors, including those who may not have previously been able to invest due to high entry costs and lack of liquidity.
- Gain greater transparency, which can be achieved through the blockchain's immutable transaction ledger. Tokenizing real-world assets on the blockchain makes ownership and management more transparent and easier to track, lowering the risk of fraud, and increasing investor trust.
The market potential for RWAs has garnered significant attention, evidenced by the implementation of pilot programs by both traditional financial institutions and crypto-based projects. A survey by Celent in 2022 revealed that 91% of institutional investors expressed interest in investing in tokenized assets. This trend has the potential to unlock a vast array of investment opportunities for individuals and institutions alike, which we are starting to witness today and for the years to come.
TREND #5 | THE RISE OF DECENTRALIZED AUTONOMOUS ORGANIZATIONS
In recent years, decentralized autonomous organizations (DAOs) have been making waves in the crypto world. These innovative organizations are built on blockchain technology, using smart contracts to facilitate decision-making, governance, and financial transactions, and are continuing to gain momentum.
At its core, a DAO is a decentralized organization that operates autonomously through code, rather than relying on traditional management structures. This new approach to organizational governance has led to a surge in the number of DAOs, covering a wide array of purposes and industries.
The growth in DAOs has been nothing short of remarkable. Data from DeepDAO indicated that the total assets under management (AUM) for the top 100 DAOs back in 2021 had already reached $7 billion. Fast forward to April 2023, and the top 10 DAOs alone now boast a combined AUM of nearly $20 billion. This striking increase demonstrates the rapid expansion and adoption of decentralized autonomous organizations. Even multibillion corporations have started looking into DAOs, and how to implement their components into their own operations.
TREND #6 | NODE-AS-A-SERVICE: A GAME-CHANGER FOR BLOCKCHAIN INFRASTRUCTURE AND WEB3 DEVELOPMENT
As blockchain technology evolves and the demand for Web3 applications surges, node-as-a-service (NaaS) has emerged as an important trend, set to support the way developers build and maintain decentralized applications. Nodes, the backbone of any blockchain network, ensure seamless communication and tracking of network activity. Blockchain node providers, such as Infura and Alchemy, facilitate access to these nodes through application program interfaces (APIs), without the need to invest in expensive hardware and infrastructure.
Node providers not only save developers time and money, but they also relieve them of the responsibility of maintaining and updating their infrastructure. They offer a unique approach to empowering Web3 developers with a network of nodes by following consensus algorithms of different blockchain networks. As a result, developers can avoid energy-intensive applications, reliability risks, and the burden of financial costs.
The growing importance of node-as-a-service can be compared to the role of cloud computing in the Web2 era. Just as Amazon Web Services (AWS) allowed Web2 applications to run on third-party infrastructure, NaaS providers enable Web3 developers to do the same on the blockchain. This shift in infrastructure management is significantly lowering the barriers to entry, and accelerating innovation in the blockchain ecosystem. By offering chain support, reliability guarantees, enhanced APIs, and variable pricing tiers, blockchain node providers are poised to become indispensable tools for developers in the blockchain ecosystem.
TREND #7 | ADDRESSING SCALABILITY OF BLOCKCHAIN NETWORKS WITH ROLLUPS
As more dApps and DeFi protocols are deployed on Layer-2 (L2) chains to take advantage of their scalability, the use of Ethereum's L2 ecosystem steadily increases, creating scalability challenges. The industry is, therefore, witnessing a race to find innovative scaling solutions and has seen tremendous advancement in L2 rollups. L2 rollups, comprising zero-knowledge (ZK) rollups and optimistic rollups, offer a more efficient and secure approach to managing blockchain transactions.
ZK-rollups use cryptographic proofs to bundle multiple transactions into a single proof and submit it to the Ethereum mainnet (Layer-1) without revealing the transaction details. While ZK-rollups are effective for simple transactions and basic operations, they lack the ability to accommodate complex smart contracts, which are essential for the development and growth of dApps and DeFi protocols. Zero-knowledge Ethereum Virtual Machines (zkEVMs) are being designed and launched to extend the benefits of zero-knowledge proofs to a more comprehensive range of applications, offering an L2 environment that supports complex smart contracts while retaining compatibility with Ethereum's infrastructure. Many projects compete to introduce their zkEVM offerings, such as Polygon and Consensys with Linea.
Meanwhile, optimistic rollups, adopted by platforms like Optimism and Arbitrum, process transactions and smart contracts off-chain in a separate environment, while maintaining the security provided by the main Ethereum chain (Layer-1 or L1). Optimistic rollups assume that transactions are valid by default, and only require verification if they are challenged, hence the term "optimistic." Periodically, a summary of the off-chain state is submitted to the main chain, which keeps the network secure and verifiable.
As the Ethereum L1 is evolving into a settlement layer, with an increasing number of transactions leveraging L2 solutions for heightened scalability, we are yet to witness the best scaling solution.
Source: Lucidity Insights
TREND #8 | THE IMPACT OF ARTIFICIAL INTELLIGENCE ON BLOCKCHAIN
Artificial intelligence (AI) has been a focus of the Web3 community since the early days of blockchain technology. Yet, it is only recently that certain AI-decentralized projects have come to the forefront following the buzz generated by ChatGPT.
AI is expected to help tackle the industry's pressing issues related to security, scalability, and user-friendliness. As AI continues to evolve, the blockchain sector is on the verge of tremendous breakthroughs in areas such as security, where AI can help detect fraudulent financial transactions, or in efficiency, where it can help optimize calculations to reduce miner load, which would result in less network latency for faster transactions. The Graph or Fetch.ai are examples of decentralized projects leveraging AI to better the blockchain.
The Graph (GRT), for instance, is an innovative decentralized protocol designed to revolutionize the way data is indexed and accessed in blockchain networks. Utilizing advanced AI algorithms, The Graph optimizes the indexing process by efficiently organizing on-chain information and providing developers with a seamless API for querying blockchain data. By harnessing AI's capabilities, The Graph offers an unprecedented level of accuracy and scalability, paving the way for a more robust and accessible decentralized data infrastructure.
Fetch.ai is a groundbreaking artificial intelligence (AI) and blockchain-based platform focused on enabling a decentralized digital economy. By harnessing the power of AI, Fetch.ai utilizes autonomous economic agents (AEAs) that autonomously perform tasks, negotiate, and make decisions, driving the next generation of smart applications. These AEAs interact within the Fetch.ai ecosystem to optimize processes, create value, and provide users with efficient, personalized solutions, ushering in a new era of intelligent digital services.
TREND #9 | BLOCKCHAIN'S PATH TO A GREENER, MORE SUSTAINABLE FUTURE
The rapid growth of blockchain technology has been closely associated with environmental concerns, particularly regarding its energy intensiveness and carbon footprint. In response to this impact and the growing potential for governments' regulatory actions that could negatively impact innovation, stakeholders in the blockchain space have been striving to address these issues and pave the way for sustainable progress.
One of the earlier manifestations was the Crypto Climate Accord created in 2021. Inspired by the Paris Agreement, this accord seeks to decarbonize the sector by 2040, focusing on increased renewable energy usage and energy efficiency. One remarkable achievement in this regard is the successful completion of Ethereum's Merge. Ethereum, the second-largest cryptocurrency by market cap, has transitioned from the highly energy-intensive proof-of-work (PoW) consensus algorithm, to the more efficient proof-of-stake (PoS), thereby reportedly eliminating 99.99% of its carbon footprint. This historic move has set a benchmark for other cryptocurrencies, demonstrating that a greener blockchain is possible.
At the 2022 edition of the Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCC) -more commonly known as COP27- in November 2022, Web3 companies convened by Consensys. Allinfra, and civil society leaders, along with the UNFCCC Climate Innovation Hub, announced the launch of the Ethereum Climate Platform (ECP).
The ECP's mission aims to redress Ethereum's carbon footprint since its launch in 2015, and to fund and incentivize projects that mitigate greenhouse gas emissions, and deliver lasting environmental and social impact. The Platform will invest in science-based climate projects, leveraging Web3 technologies, infrastructure, and funding mechanisms to achieve tangible results.
While the sustainability journey for blockchain continues, it's important to recognize the technology's potential also to help combat climate change. For instance, blockchain can be used to track carbon credits, ensuring accurate recording of emissions reductions. As technology evolves, the push for a greener, more sustainable blockchain is gaining momentum, promising a brighter future for both the environment and the blockchain ecosystem.
TREND #10 | THE WEB3 JOB BOOM: INDUSTRY DEMAND SURGES, YET FACES TALENT SHORTAGE
According to The Block Research, in 2022, the Web3 industry could have employed between 120,363 and 282,516 people, up three times since 2019. Over a similar period, an Indeed employment report revealed a surge in market demand for Web3 professionals with job postings growing 15 times between April 2019 and April 2022, strongly outpacing the pace of employment. This led to market experts saying that the industry is facing a shortage of talent globally.
Source: Lucidity Insights
While demand for tech talent such as blockchain engineers and developers remain the most sought-after talents, there are also many non-tech jobs that are in demand, especially on the marketing side. And in today's fast-paced digital world, boosting your blockchain skills has never been easier. With resources like Metamask Learn, Consensys Academy, and popular platforms such as Udemy and Coursera, there are a multitude of free resources to help you on your way to becoming a blockchain expert. In true Web3 fashion, Metacrafter.io embraces the spirit of Web3 by offering a decentralized learning experience. Their goal is to upskill one million Web 2.0 developers through the gamified, decentralized proof-of-learn initiative, to help address the current developer shortage.
To dive deeper into the future of Web3 and the decentralized web, read our full report on Opportunities in Web3 by clicking here.
This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East in developing special reports on the Middle East and Africa's tech and entrepreneurial ecosystems.
