What a difference a year makes.
While the economic world doesn’t really need to get more specific with that statement, that doesn’t negate the fact that there are some areas affected more by the macroeconomic downturn than others.
We’ve talked extensively about how the world of startups was altered by the transition away from forward-looking, flashy businesses in favor of safer, more financially grounded ventures.
That distinction is important, and it has had a sweeping impact on the types of companies able to secure capital.
Yet there may be no sector more affected by the macroeconomic downturn – and a host of other ominous headlines – than Web3.
For many, the concept of Web3 is more ambiguous than fast food ingredients.
Where Web1 represents the development of HTTP and WWW, and Web2 is used to describe the “social web,” Web3 remains a mystery to many.
That’s why back in September, Buck Jordan took some time to explain the appeal behind these technologies, potential use cases, and more.
In that piece, he explained Web3 as follows…
Despite the incredible achievements of Web1 and Web2, the internet still has a lot of unsolved problems, and some of them have really started to cause problems.
Fraud, IP theft, and crime have soared on the modern internet. Fake content and fake news have spread like wildfire, and this phenomenon continues to worsen. The list goes on.
Crime and misinformation aside, there are also parts of the web experience that remain clunky, such as payments, identity verification, and proving ownership.
As the third major wave of internet technologies, Web3 is focused on solving many of these unsolved problems and making the internet even more powerful. Web3 is composed of four main components:
- Blockchains: Distributed ledgers that are cryptographically authenticated to prove ownership and verify transactions
- Cryptocurrencies: Internet-native currencies powered by blockchains
- Decentralized Apps (DApps): Web2 products and apps redesigned in a decentralized manner and powered by blockchains
- Decentralized Finance (DeFi): Redesigning traditional financial services and institutions in a decentralized manner with community participation and powered by cryptocurrencies and blockchains
Of course, between January and September 2022, Bitcoin went from roughly $47,000 to $19,000.
As if that weren’t enough, the highly publicized collapse of cryptocurrency darling FTX sent the blockchain and cryptocurrency industry reeling even further.
The result has been a substantial funding drought in the Web3 space.
The fourth quarter of 2021 saw Web3 startups receive a whopping $9.3 billion of funding. Fast forward 12 months, and Q4 2022 only brought in $2.4 billion, a 74% drop.
While there were 677 deals announced in the space between investors and startups in Q1 2022, Q4 saw just 327.
And so, as FTX and Sam Bankman-Fried move forward with a highly anticipated legal battle in 2023, the industry sits in waiting.
It would be easy to write off Web3 and its disastrous 2022 as evidence of an industry fated for failure.
Yet there are many who feel 2022 was a necessary detour to Web3’s ultimate destination, helping to weed out the bad from the good.
There is a good chance funding and access to capital for these startups will remain dry as the investment landscape continues to prioritize profits in place of projections.
However, don’t mistake this slowed momentum as an obituary – there are hordes of entrepreneurs continuing to work on bringing these principles to mainstream tech.
Despite the downturn, this is still a space we’re monitoring closely. We’ll let you know what we discover.