Web3 Use Cases: The Future

Will web3 justify the hype?

Jun 27

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Hi friends 👋 ,

Happy Monday!

On Thursday, I sent out Part I of a two-part series on web3 use cases, today and in the future. In today’s essay, we’ll focus on the future and discuss whether web3 will be worth the hype.

I’m having a blast with this debate, and it’s making more groundedly excited.

Let’s get to it.

Web3 Use Cases: The Future

What’s the point of all of this? If web3 ends up becoming a big thing with a lot of users and new, valuable business models, so what?

On Thursday, I wrote about the web3 use cases that exist today to set a baseline:

NFTs: $31.3 billion of volume in the past year on OpenSea alone
Decentralized Exchanges: the leading DEX, Uniswap, has handled over $1T in volume
DeFi Protocols: Compound, Maker, Aave, and other DeFi lending protocols have held up well during the sell-off while centralized DeFi lenders have struggled
Real-World Lending: Goldfinch and Jia help close the credit gap in developing countries.
User-Owned Marketplaces: Braintrust has doubled Gross Service Volume to $74 million in the past five months while keeping its take rate at an industry-low 10%.
Connected Device Networks: Helium and DIMO facilitate networks built by users and ecosystems of applications built on top of user-owned data.
Stablecoins: USDC, DAI, and other fully/overcollateralized stablecoins facilitate payments, especially internationally. There are $155 billion of stablecoins in circulation.
Evan Conrad Use Cases: In a blog post, Evan Conrad highlighted non-government money, cheap loans, Filecoin, Lab DAO, Radicle, Helium, Toucan, and Golden.

Today, real people are spending real money to use real products, even if some seem silly or circular.

But the real question isn’t whether there are any use cases, but whether there will be use cases that, collectively, are worth the hype.

Aaron Levie @levie

@theodorexli @packyM @zachweinberg Correct. The issue is not are there use cases in general. The issue is are there enough use cases (that aren’t driven by speculation) that are superior to the regular web in such a way that consumers adopt at scale.

In other words, will web3 produce use cases that justify all of the venture dollars, investment, and talent dedicated to the space? I think it will. That’s what today’s essay is about.

There are two time-scales on which I’m excited about web3’s potential: the next few years and the next few decades.

If there is another bull cycle in the next few years, I think it will happen on the backs of real products that people use at scale, not speculation. When those hit, speculation will follow, but that will look more like a traditional tech bull run than pure speculation. These products are on the way – the applications are coming and the infrastructure continues to improve.

In the next few decades, I believe that web3 infrastrastructure will become the fabric of much of what we do online and in our financial lives. I also believe that the experiments web3 protocols are running in economic design, incentive alignment, and governance will jump out of the internet and impact “real-world” institutions.

Today, I’ll dive into some of the future use cases and potential benefits I’m excited about.

The Next Few Decades

So let’s begin with the future. If all of this pans out, so what?

Personally, I’m excited to see more rapid iteration, more ownership and upside for users, new governance and economic models, more liquid, efficient, and global capital markets, and a more fun world.

While it’s hard, in the midst of a bear market, to see a path through all of the short-term technical, financial, and social challenges, it’s actually equally difficult to imagine a future world a few decades out in which web3 doesn’t play a big role.

When I think about where all of this is heading, I have a graph that looks something like this in my head:

When people say that web3 is speedrunning the history of financial markets, or speedrunning the history of governance, what they mean is that we’re making a whole lot of mistakes that have already been made before, at a much faster rate than we’ve made them before.

In the earlier stages of that process, it looks incredibly stupid. “That’s a ponzi!” “Of course direct democracy doesn’t work for DAOs, there’s a reason the US is a representative democracy. And at that point, are you really decentralized?” “Have these people learned nothing from 200,000 years of human history?”

But I think that there’s a logical fork, and that you have to believe that one or the other is true:

That existing economic and governance models are as good as they’re ever going to get.
That they’re not, and whatever allows for the most rapid iteration on new models will ultimately produce superior models.

If I had to describe why I’m excited about web3 in one idea, it would be that: web3 allows for the most rapid iteration on new economic and governance models of any system humans have built.

Every new app, game, and protocol is simultaneously a mini-experiment in economic design. Every DAO and even some NFT projects, like Nouns, is simultaneously a mini-experiment in governance. In the early days, that means that web3 entrepreneurs face even more complexity than a traditional entrepreneur might – they need to build a great product, a thriving economy, and an attack-resistant and productive governance system. Some skeptics believe that the trifecta represents too much complexity to build things users understand and love. Centralized products can move more quickly on their own. But I think web3 startups will experiment, learn, and evolve quickly as a hive, that each successive startup will build on the previous startups’ software and Idea Legos until they accelerate past current institutions’ pace.

Some of that experimentation will be micro: for example, a web3 version of Twitter with an open protocol on top of which anyone can build clients will power more innovation in web3 Twitter client design. Other experimentation is macro: for example, how large groups of token holders can govern lending protocols that control billions of dollars fairly. In both cases, there will be more failures than breakthroughs.

But the breakthroughs might be very important. They might influence how we design traditional economies and institutions, and even the economic and governance models we create when we get to build them from scratch, on Mars, asteroids, and beyond.

At the core of web3’s rapid iteration is the concept of Hyperstructures. Jacob Horne’s essay on Hyperstructures, which I shared on Thursday, is foundational reading, literally. Hyperstructures are “Crypto protocols that can run for free and forever, without maintenance, interruption or intermediaries.” They “are entirely onchain, and are public goods which create a positive-sum ecosystem for any participants.”

*Paolo Soleri's "hyperstructure" in ground-level view from* Hyperstructures

Hyperstructures are like the open protocols like http, IP, DNS, SMTP, and the others that underpin the internet we know and love, with additional features, as laid out by Horne:

Unstoppable: the protocol cannot be stopped by anyone. It runs for as long as the underlying blockchain exists.
Free: there is a 0% protocol wide fee and runs exactly at gas cost.
Valuable: accrues value which is accessible and exitable by the owners.
Expansive: there are built-in incentives for participants in the protocol.
Permissionless: universally accessible and censorship resistant. Builders and users cannot be deplatformed.
Positive sum: it creates a win-win environment for participants to utilize the same infrastrastructure.
Credibly neutral: the protocol is user-agnostic.

The concept shares ideas with Chris Burniske’s Protocols as Minimally Extractive Coordinators, a classic that I’ve quoted a bunch.

The important thing to take away from both pieces is that web3 introduces the opportunity to create software infrastructure that is free to use forever, and that anyone can build on top of, but that rewards “the builders and participants for creating and contributing to these invaluable systems that serve society at large for many years to come.”

The most successful example to date, which I highlighted last week, is Uniswap. Despite not charging its users a fee, Uniswap has a $4.1 billion market cap (fully diluted: $5.6 billion). Horne believes that there should be a single hyperstructure for each financial and non-financial utility: exchanges (Uniswap), marketplaces, lending pools, options, domain names, registries, identity, curation, tags, reputation, emojis, read receipts, and more.

Each would be a piece of free infrastructure, composable with other pieces of free infrastructure, that each successive generation of entrepreneurs can build with, enabling them to focus on the thing that differentiates them, thus increasing the rate of innovation and abundance of creativity. Hyperstructures excite me for the same reason that APIs excite me, with the added benefits of being free, permanent, expansive, and permissionless.

Hyperstructures will underpin a global, liquid market for both digital and physical items.

As Zach Weinberg highlighted in our debate on DeFi and housing, there’s a lot to figure out to bring real world assets (RWA) online. For one, what happens in the case of default? While defaults are a rare occurrence that happen on less than 2% of loans, they will still need to be settled on paper, in courts. There will need to be hybrid solutions that mirror some analog workflows. But dealing with legacy processes for a small minority of cases in order to make the majority of cases faster, cheaper, more efficient, and more composable is a feature, not a bug.

Personally, I think it’s inevitable, and I’m going to quote our friend Jeff Bezos to explain why:

'What's not going to change in the next 10 years?' … [I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible.

Customers want low prices, fast delivery, and vast selection. Web3 has the potential to bring all three to financial markets. Whether in ten years, twenty, or thirty, I expect that most large financial assets and transactions touch web3 – whether that’s houses, cars, project finance, or company ownership. Bringing those assets on-chain will connect them to global pools of capital and liquidity, and to all of the money legos being created in DeFi.

As Sam Lessin put it, “Most things people own, real estate, small businesses, etc. have shit access to liquidity, leverage, etc.” The prize for solving that pain point is enormous – the tokenization of everything – and will attract waves of talent, capital, and creative approaches. Obviously, this will need to be done hand-in-hand with smart regulation. When crypto touches RWA – when small business owners can source cheaper capital, when homeowners can get more competitive home equity loans, and when users can seamlessly own a piece of the products they use – regulators will be motivated to find solutions that protect people without restricting access.

With Hyperstructures, tokenized everything, and rapid iteration on economic and governance models, web3 will be a big piece of the puzzle in solving some of humanity’s most complex challenges.

Physical

The first essay I wrote this year was called The Laboratory for Complex Problems. It was about web3’s opportunity to be a simulator for solutions to complex problems that require large-scale human coordination, like climate change.

The theory is simple. All of the tokens, voting, and even NFTs are in a goldilocks zone: contained enough that the stakes are low for most people, but with bigger financial consequences than the $20 students play with when they participate in academic economics studies. Plus, web3 ecosystems are dynamic and interconnected, more like the simulations that complexity scientists run than formulae and theories, with real people instead of “economic man.” Read that piece for the full argument; for now, I’ll quickly go over two complex problem areas that web3 is starting to tackle via regenerative finance and decentralized science.

Regenerative Finance. Among the challenges with our current financial system is that it’s too easy to get away with producing negative externalities and letting the commons foot the bill. Regenerative Finance (ReFi), is a bold attempt to rethink the system. As I wrote in Celo: Building a Regenerative Economy:

ReFi is a beautiful idea – a re-imagining of the financial system using the tools humanity now has at its disposal to better account for the needs of all stakeholders, current and future. It puts a price on externalities, charging those who create negative externalities and rewarding those who create positive externalities.

Specific ideas in ReFi include UBI, lending, data ownership, community commerce, and many web3 x climate projects that Not Boring Capital has backed, including:

Toucan: The web3 Carbon Stack, including tokenized carbon credits, with over 21.9 million tonnes of CO2 bridged to date.
Loam: Creating a marketplace for farming data, a fast, easy, and transparent platform to incentivize farmers to engage in regenerative practices.

Do you need a blockchain for these use cases? Maybe, maybe not. Carbon credits exist already. It might be possible to create a web2 marketplace for farming data and an exchange for credits based on the carbon farmers put back into the ground. Web3 just makes both more efficient, transparent, and composable – imagine a pool of Loam Credits tapping into global capital markets on Toucan. On a recent episode of Bankless, Mark Cuban talked about how much easier it was to buy and burn BCT (Base Carbon Tonnes) on Toucan to offset his carbon footprint than it was to buy carbon offsets from a broker.

Bankless 🏴 @BanklessHQ

This is what @mcuban is bullish on in crypto lately, and it may surprise you.

(To be fair, he also said he hasn’t seen a killer app like streaming yet, which I agree with.)

By simply making it easier to access carbon credits and providing a liquid, global market, ReFi has the potential to increase the demand for offsets (Toucan, Flow Carbon), which should spur more supply of carbon offsetting projects (Loam, Open Forest Protocol).

There’s been an explosion in ReFi projects over the past year, but I’m keeping this in the future bucket, because it will be decades before we see how much of an impact they’ve made.