When the World Wide Web first became a phenomenon in the 1990s, many websites looked like scanned PDF documents with text, images, and clickable links.

However, that soon changed as Web 2.0 ushered in a more participatory experience, leading to an explosion of user-created content.

Yet the web as we know it now has also faced all sorts of challenges, from cybercrime to surveillance capitalism, widespread misinformation, and a rapidly worsening erosion of trust.

Web3, by design, might offer better resistance to those problems. It’s open source, borderless, and extremely fast, so it’s easy to see why it’s attracting investor interest.

With his recent introduction investment thesis web3They hoped it would be useful to founders, investors, companies and other stakeholders, the Woodstock Fund, a pioneer in investing in Web3 in India, detailed the megatrends it believed would drive Web3 growth.

Growth parallels between Web2 and Web3

As of 2022, the global number of holders or users of digital assets is around 300 million. With increased focus on decentralization, artificial intelligence and machine learning, Web 3.0 is expected to be an extension of Web 2.0 to further the motto of creating a user-by-user space for more interaction.

The Woodstock Fund thesis reports that “although the consensus seems to indicate that we are in a bear market and approaching recession, we are as committed to DLT (distributed ledger technology or Blockchain) and digital assets as we have ever been. We strongly believe that this asset class continues to present a once-in-a-lifetime opportunity.”

The growth and relevance of Web3 stem from the answers to some fundamental questions:

01. Why will new users arrive to Web 3.0?

Answer: Better and cheaper experiences generated with greater transparency and technological changes using blockchain.

02. What kind of regular users will initially move to Web 3.0?

Answer: Those who are underserved and those looking for new or better experiences, primarily Generation Z, SMBs, and the gig economy.

03. Where will the new sticky capital come from?

Answer: In addition to relying on crypto and retail, it is understood that with better risk management, regulatory clarity, and sustainable business models, retail and institutional capital could flow to enable growth at scale.

04. What technological changes are necessary to enable 1 to 3?

Answer: Identify credible pathways to enable full decentralization or only necessary decentralization.

Megatrends that will drive the growth of Web3

01. Convergence-

The convergence process of various elements (society, technology, economy and ecology) will create an amalgamation of ideas, knowledge sharing and value creation.

Technological growth based on Web 3.0 will lead to further melting of physical borders allowing for greater convergence of cultures, communities, economies and governance globally.

The four components here are:

• Social: Reduced generation gaps, increased purchasing power, breaking down of geographic borders, and support of online and offline infrastructure have helped the growth of the gig economy, therefore support the establishment of remote teams from different cultures to work together.
• Technology: The evolution of open source technologies leads to accelerated growth of software. Although this presents a steep learning curve for end users, the convergence of traditional and emerging technologies will significantly reduce the time and energy required to adopt emerging technologies and solve global problems.
• Economy: Blockchain and digital assets have enabled the creation of community-focused economic incentives, allowing consumers to participate in and benefit from the growth of products. Blockchain technology can also enable fractional ownership of previously illiquid assets, allowing for equal participation in economic growth, which is essential for uniting a fractured, multi-tiered society.
• Ecology: Web 3.0 will have a greater focus on conscious and sustainable development through less energy-intensive mechanisms and/or the use of renewable energy sources. Most existing technology streams that are layered solutions will benefit from blockchain integration.

The thesis reports that “the basic Web 3.0 principles of collaborative, borderless communities with distributed control (social), consumer-focused incentive structures (economic) and conscious sustainability (ecology), all on the basis of blockchain (technology ), to be the next turning point in the evolution of humanity”.

02.Financialization –

In the last two years, decentralized finance (or DeFi) has been one of the highlights of the expansion of digital assets. However, issues such as fragmented liquidity and a lack of regulations have prevented the creation of a broad-based DeFi ecosystem.

While it is true that DeFi is a much more efficient technology than TradFi, as it can enable faster and cheaper borderless flow of capital and liquidity, the aforementioned issues (among many others) ensure that the ecosystem is under greater scrutiny. regulatory and needs to evolve. to attract rigid capital and demand.

The thesis highlights the Financialization trilemma as overlap between blockchain technology, regulations and liquidity.

He points out that TradFi/Fintech (broad liquidity x heavy regulation) operates with archaic technology and inefficiencies that prevent capital from flowing to the sectors of society that need it most, while tokenization (regulation x blockchain) has been trying to bridging the gap between DeFi and real-world assets, but is hampered by inertia, a lack of rails, and a lack of regulatory clarity. This intersection promises persistent demand and real-world utility.

DeFi (Liquidity x Blockchain) is thriving on “regulatory arbitrage”. Its key advantages are its borderless liquidity and access, transparency, token incentives, and resistance to censorship. However, this intersection will innovate quickly but struggle to scale sustainably.

DeFi has shown that financial architecture can be recreated without intermediaries. DeFi aspires to build end-to-end functionality with a neat user experience for the sectors that need such access the most.

The end state of the DeFi trilemma is ReDeFi or Regulated DeFi, an intersection of Blockchain, Liquidity, and Regulation, which will likely require giving up a critical component to the DeFi ethos: censorship resistance. However, DeFi will innovate much faster than ReDeFi, thus being able to provide the architecture that the latter can adopt.

Some opportunities in Financialization are in the creation of rails for access to the real world; build financial blocks like exchanges, money markets, derivatives, and insurance within DeFi; reduce capital costs and provide access to loans to the underserved.

03.Virtualization –

The thesis expects the gulf between the real and virtual worlds to further blur and progress to move from tokenomics to better experiences in said virtual worlds.

He notes that virtualization is about “creating immersive and active virtual worlds that seamlessly integrate with and extend the current physical world.” There is a strong emphasis on “virtual = real”, which will be the paradigm that will define virtualization.

Given GenZ’s investment in the online space and how they are poised to create immersive virtual worlds today, we are heading to a future of virtual worlds built on public blockchains in a movement spearheaded by them. Blockchain brings immutable ownership, transferability, composability, and programmability to virtual worlds, properties that are impossible in existing (walled) virtual worlds.

Some examples of blockchain-enabled virtualization include virtual ownership and division of real-world assets, virtualized contracts, gaming, and the Metaverse.

Access the complete Woodstock Fund Web3 investment thesis

With Web3, we are likely in the early innings of what is potentially the greatest technological innovation since the advent of the Internet, providing startups, investors, and other stakeholders with one of the most skewed growth opportunities in recent memory.

With this in mind, Woodstock Fund has crafted its thesis to be a guide to the Web3 opportunity for founders, investors, companies, and other interested parties.