Sharding Capital Partner: Predicting 5 Growth Tracks of Web3 in 2023
The encryption market in 2022 gave a very "volatile" year-end answer sheet. From the beginning of 2022 to the present, in the performance of major global asset classes, Bitcoin has fallen by about 65% more than other mainstream asset classes. The black swans in the market are frequent. From the Luna thunderstorm in May to the FTX crash in November and various secondary disasters, practitioners and institutions in the currency circle in 2022 will be hit to varying degrees across the board.
2022 is a year of turmoil, but also a year of harvest. Every failure is an opportunity to learn. The cryptocurrency market will become more mature, resilient and resilient. Ethereum successfully completed Merge in September, turning the Ethereum network into a more powerful processing layer and data availability layer, providing services for rollup as an infrastructure, and laying the foundation for Sharding. Non-Fungible Tokens (NFTs) brought blockchain technology into mainstream culture, attracting buyers uninterested in financial cryptocurrencies.
Sharding Capital stated that the team has researched and inspected more than 1,000 early-stage projects in 2022, and there are still many outstanding entrepreneurs and builders forging ahead, and said, "We should have more hope for 2023 than we imagined, because in 2022 Successive black swans have laid a very favorable foundation for entry. When the industry is reshuffled, it is the best time to overtake the corner. Whether it is an individual or an institution, the more most people are afraid of entering the market or stop investing because of this, the more they must Actively research and deploy."
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TL；DR
1- NFT, as the core asset itself, will recover and strengthen, related supporting facilities NFTFi will face blowout demand
2- SocialFi attracts the attention of Web3 users and the adoption of smart contract wallets and DID is expected to help user penetration and the formation of network effects
3- DeFi applications with verified business models will capture greater value and achieve organic cash flow growth
4- Ethereum will still be dominant in the competition pattern of the public chain, and the L2 ecological development trend is improving
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NFTs become"Getting Started for New Users"The boot factor NFTFi will face blowout demand
NFT, a representative of alternative assets in encrypted assets, focuses on cultural and financial attributes with PFP as the core. At present, it is at the issuing end and trading end of assets. The current feature is that the total circulation is scarce, and the non-homogeneity makes the valuation more complicated, which leads to the low liquidity of the NFT market.
The past of NFT: the single type of assets and the homogeneity of the narrative lead to a lack of asset supply. There is less allocation of encrypted assets in the downward market, and the liquidity allocated to NFT (alternative assets in encrypted assets) is even less. The demand side is cautious about the downward market and cannot generate new investment and consumption demands. The valuation, lending, and liquidation systems are also flawed.
The status quo of NFT: PFP cultural NFT dominates, and the first wave of NFT bubbles burst and return to rationality. NFTFi is the focus of attention from all walks of life, and it is difficult for Utility NFT to land.
The future of NFT: Enrich the asset types of NFT, expand the internal diversification of PFP-type NFT, start from the creation and distribution methods, secondary creation, service creation and infrastructure of secondary creation, enhance the light financial attributes of MEME culture, and promote the flow of alternative assets themselves sex. In addition, Web2 companies and brands frequently try their best to participate in the wave of NFT, expand audiences and increase brand influence.
In terms of products, the financial development of NFT has existing EIP standards, issuance standards: ERC-721, ERC-1155, ERC-875, leasing standards: ERC-490, semi-homogeneous tokens: ERC-3525, royalty income: ERC -2981. These deepen the financial composability of NFT. The commercialization of NFT and the establishment of the existing EIP standard and ERC-5192 make it possible for SBT applications to be adopted on a large scale. EIP-5643 Subscription Agreement, membership service The big track of web2.0 opens up the imagination space of entering web3.0. The development of practical NFT (Utility NFT) has a long way to go.
It is worth mentioning that NFT has no original sin, and there is no excessive burden to affect the take-off. NFTs are becoming"Getting Started for New Users"As a key guiding factor of NFT, its core assets will continue to receive attention and become stronger as time goes by and the increase in exposure, so we are very concerned about the mainstream narrative that can give birth to the NFT financial market and aggravate liquidity service modules, such as transactions, mortgage lending, fragmentation Innovative applications such as globalization and options, such as management tools for NFT assets, and SDKs that bring web2.0 IP fans into web3.0.
With the evolution of NFT assets, many interesting NFTFi projects have come into view. For example, Sudoswap allows liquidity providers to provide instant liquidity for NFT transactions through the use of AMM, and BendDAO provides blue-chip NFT holdings through point-to-pool To solve the needs of instant lending, Putty allows users to choose Put (sell)/Call (buy) to combine long/short combinations to meet different needs.
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SocialFi has attracted the attention and adoption of Web3 users, and smart contract wallets and DIDs help user penetration and the formation of network effects
In the Web2 world, social products can only participate in creation and dissemination, and users do not have the right to own data. Whether it is overseas Facebook, Twitter or China’s Weibo WeChat, the behavior of the platform to use user behavior data and portrait data to iterate the feed algorithm to empower advertising revenue is essentially a free expropriation of users’ digital assets.
Social (web3.0) solves data ownership, privacy and revenue rights, while focusing on traffic (fluidity), attention, and control over users. This dual-line narrative of "fluid sovereignty" is in line with the equal, free, and open virtual social vision advocated in the new era. In addition, social platforms hold large-scale user traffic, portraits and behavior data, which contains huge commercial value.
The SocialFi application has basically the same functions as the web2.0 social products that meet the daily experience, but the product makes it easier for users to have data sovereignty and interact with encrypted currency in web3. Its development is built around the composability of data. We can pay attention to SocialFi infrastructure, protocols around data transmission storage and norms, middleware, core social graphs around data availability, smart contract wallets that greatly reduce the onboarding threshold, and decentralized IDs (DIDs) that individuals can carry to different DAPPs. ). The emerging new generation of SocialFi projects has achieved a lot of growth in this bear market, and it is believed that this data will continue to strengthen in 2023. For example, the Lens protocol, a Web 3.0 social protocol deployed on Polygon built by the Aave team, has almost doubled its monthly engagement, with 370,000 monthly engagements in terms of posts, comments, and mirrors (equivalent to forwarding). There is also a decentralized social Phaver that allows members to discover and connect with each other through interest discovery and vertical communities. The number of downloads has just exceeded the 100,000 mark recently. In addition, Web2 social platforms such as Twitter, Instagram, and Tiktok have also made frequent moves, wanting to occupy a place in this emerging market. As early as 2021, Twitter established an internal Web3 department, Instagram also increased its betting on NFT and Metaverse, and pan-community products such as Tiktok and BiliBili also participated in the NFT/SocialFi wave in a more novel way.
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DeFi applications with proven business models will capture greater value and achieve organic cash flow growth
DeFi, decentralized finance, can be said to be the most important usage scenario of blockchain. Although the total locked-up TVL of DeFi in 2022 will continue to shrink due to the impact of downward currency prices, from the historical peak of US$180 billion in December 2021 to US$38.5 billion on December 31 today, a drop of about 78%, but The number of people using DeFi is increasing, and the number of people using wallets is increasing.
In fact, the thunderstorms and trust crisis incidents of centralized financial institutions such as Celcius or BlockFi just proved the security and transparency advantages of DeFi. Users control their own assets, smart contracts manage assets, and data on the chain is open and transparent. After FTX crashed, DeFi trading volumes have surged, increasing by 68% (to about $97 billion) from October to November.
We have seen that many DeFi cases with clear business models are also increasing the number of users and transaction volume in the bear market. For example, Uniswap continues to maintain a transaction volume ratio of about 50%, and Curve’s ratio continues to rise from 12.9% to 19.6%. Ethereum Lido/Rocket Pool, a project focused on liquidity staking, has increased its pledge amount by 85% compared to the beginning of the year; the market share of GMX, a decentralized perpetual exchange on Arbitrum, has increased from 9% to about 15% in the past six months, and even a few The daily income exceeds that of Uniswap; Gains Network, a perpetual dark horse on Polygon, supports stocks and foreign exchange in addition to encrypted assets, and has brought together a trading volume of 8.1 billion US dollars in half a year.
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Ethereum will still dominate the public chain competition pattern L2 ecological development trend is improving
With Vitalik directly adopting the description of "A Rollup-Centric Roadmap", the technical route dispute between Plasma and Rollup will basically be settled in 2022. At present, the leading L2 project party and the corresponding development team are fully implementing Rollup.
Regardless of the ups and downs of the primary and secondary market valuations, the actual development stage of leading L2 ecosystems including Arbitrum, Optimisim, StarkNet, zkSync, etc. is still in the early stage, and the application system and user experience are hardly mature (especially Zk Rollup). In the case that the value propositions of the two major factions of Rollup, OP Rollup and Zk Rollup, are less likely to be falsified in the short term, we believe that the multi-party coexistence of L2 will continue for a period of time, but considering 1) L2 tokens in There are limitations in the utility of the ETH ecosystem, 2) always face the competition of dedicated chains (refer to the dYdX case), 3) general expansion is still technically uncertain (zkEVM, etc.), directly selling the L2 ecosystem itself needs to consider the valuation Discipline.
From the perspective of developers' time and energy share, Ethereum's head advantage has been consolidated and strengthened during the bear market, and a large amount of development work has been directly or indirectly undertaken by L2. The Sharding Capital team is in the process of looking at a large number of projects on the front line I have accumulated a strong sense of this point, and will continue to pay attention to the emergence of high-quality application layer project teams in the L2 ecosystem. In addition to the GMX mentioned in the DeFi chapter, Perpetual Protocol and Robicon’s UAW in the Optimism ecosystem reached 140,000 and 100,000 respectively in December 2022. Treasure DAO’s game aggregation platform + unified token governance model also inspired a lot think.
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The next-generation pan-entertainment head application will lead the outermost edge of Web3 breaking circle
One of the characteristics of the last cycle is that L1 has captured most of the valuation growth in the asset class of Crypto. The overall pattern of infrastructure over application is very obvious, just like a city that has invested a lot of funds, resources and attention. In terms of expressway construction, the traffic of vehicles that actually carry passengers is not large, and vehicles with a large passenger capacity are still being actively competed by various expressways.
Sharding Capital judges that in the next cycle, infrastructure will still capture most of the valuation increment, but the share of the cake cut by application project parties will not be as disparate as before, and will continue to show a spiral upward trend. The To-C attribute under the blessing of the token economy will naturally carry more speculative elements, but there is still a valuable legacy after the bubble. The overall number of Web3 users will increase by one or two orders of magnitude from the highest point in the previous cycle. The outermost edge of the penetration into the entire user end will be extended, and the life cycle of top popular apps will be lengthened.
For top-selling apps, Sharding Capital insists that products that follow human nature have greater potential to break the circle than products that oppose human nature. Therefore, pan-entertainment (games, media, etc.) has a natural advantage in guiding user behavior with positive externalities. Content From creation -> distribution -> the form presented to users, every link of the entire chain is undergoing revolutionary innovation. We believe that the AIGC high-quality team in the creation link, the game development/operation high-quality team, and the distribution link used for The teams that have the opportunity to form an advantage in the data reserve of AI algorithms, and the teams that can quickly follow up with the next-generation hardware devices in the presentation link, deserve special attention.
It must be admitted that the financial attributes of Web3 applications and the high efficiency of value transmission will lead to more speculation, which may lead to blurring of value propositions and repeated public opinion in the process of breaking the circle. Therefore, whether the above thinking can be successfully realized as Web3 in the next cycle We are still cautiously optimistic about the historic killer app that has a huge amount of traffic, a sufficient network effect, and a fully running business model, but we are willing to wait and see in 2023.
write at the end
write at the end
2023 has only just begun, but it will only be a brief moment in crypto history. Because the encryption industry is in its early stages, changes and trend adjustments every year, every month or even every day will change the direction of the future.
As ordinary people who eat melons, everyone should treat new things with a normal mind, give enough tolerance and imagination, and also have to take appropriate precautions and vigilance, and subtly enjoy the large-scale commercial use that may be achieved in the next 10-20 years.
As enthusiastic participants, you are welcome to fully embrace the bubble, maintain the industry's information sensitivity and increase awareness, make full use of the industry's early information asymmetry arbitrage, and counter-cyclically invest in high-quality assets at a relatively low cost (buying the bottom).
As enthusiastic industry personnel and believers, such as the Sharding team, we need to improve our understanding of the industry's cognition and cycle, check the project quality and founder quality of the first-level investment, and place a heavy bet on the correctness of early non-consensus , not shaken by changes in the external market environment and sentiment. For new tracks and market demands, with the mentality of a pioneer and leader, we will be unwavering with the founders, accompany the growth of excellent teams, and invest in projects that can be used by people who eat melons, and that enthusiastically participating group owners can make money.
I wish you all a slay in 2023.
