Three ways web3 will change your world
Three ways web3 will change your world. Image:Getty.
Is web3 just another buzzword? Why the fuss, and what was wrong with web2 anyway? Leading cryptocurrency exchange and web3 wallet Bitget helps us understand why it’s such a big deal, and how – as investors – we need to position for it.
What is web3?
Is it crypto? Blockchain? Decentralisation? Is it PEPE the frog? It certainly combines the first three.
Broadly speaking, it’s the term given to a new/next generation of the internet, built on decentralised blockchain rails.
Web1 was the birth of the internet – scratchy, whiny white-noise dial-ups, downloading pics for three hours, a sweat-stained Steve Ballmer convulsing to Start Me Up.
Web2 has been pretty much everything that came next, including Zuck and your data, cat videos and a soupy social media mush of opinions and trolling from everyone on just about everything.
Web3, to those who espouse it, represents the next great evolutionary technological leap. Along with artificial intelligence, that is.
And that’s because it aims to give users greater control over their data, enabling them to choose who has access to their information.
It is seen as the enabler of a power shift from centralised control and intermediaries everywhere to the very end users of the internet themselves. That is, you, me, us, and not them, all while utilising concepts, and concepts within concepts, such as these…
1. Decentralisation and DeFi
Bitcoin (BTC) epitomises decentralisation thanks to its gigantic worldwide operating system of more than 10,000 nodes (people operating the Bitcoin software) scattered all over the planet, making it essentially the world’s largest computing network – incorruptible and with no single point of failure.
There’s that, and the fact no one still has a clue who its creator(s) Satoshi Nakamoto is (are) and likely never will.
Arguably the greatest web3/crypto decentralised use case is DeFi. And that’s for so many reasons, including: the enabling of self-custody banking, faster and cheaper payment services, and better lending and borrowing rates than you’ll get from any regular bank.
We asked Gracy Chen, managing director at Bitget, for her views on DeFi, and what might be some good potential investment plays in the sector.
“DeFi has the potential to provide innovative and transformative developments in the industry,” said Chen.
“Centralised exchanges such as Bitget, however, are the best option for most crypto beginners, including various options for on and off-ramp service, and more customised products for different demands.
“Additionally, derivatives trading requires deep liquidity, which DeFi has yet to offer, making CEXs still the best choice for this type of trading.”
Is DeFi the next trend?
Trillions of dollars in RWA could enter the market.
3 reasons why:
/ THREAD /
— Gracy Chen @Bitget (@GracyBitget) July 18, 2023
Bitget has delved deep into DeFi, with the recent evolution of Bitget Wallet, a self-custody, multi-chain DeFi wallet that intelligently aggregates 100+ DEXs, including Uniswap, Pancakeswap, Curve etc, and cross-chain interoperability across 17 different chains.
“Through Bitget Swap, users can instantly swap between over 10,000 coins for the best price and lowest fee,” said Chen.
And as for the DeFi sector going forward? What can we expect?
“DeFi will remain a focal point of innovation and growth in the crypto space. We can expect the development of more sophisticated and secure DeFi platforms, expanding beyond lending and borrowing.
“Improved user interfaces, scalability solutions, and interoperability between different blockchain networks will enhance the overall user experience and drive wider adoption of decentralised apps by mainstream users.
“Today’s biggest DeFi tokens are from projects that did well in the 2020 DeFi Summer,” added Chen. (For example, MakerDAO’s MKR, AAVE and Synthetix’ SNX.)
“Token releases have now entered the mid-term, and the balance between token inflation and price has been achieved during the bear market phase.
“With the recent XRP-SEC lawsuit victory, regulatory pressure on DeFi has decreased. Combined with the improved sentiment in the cryptocurrency market, the outlook for major DeFi tokens has improved.”
2. Real world assets
Larry Fink, the CEO of asset management titan BlackRock, has been talking up the tokenisation of everything – of real-world assets (RWA) – as potentially the greatest web3/crypto narrative of them all.
Fink believes tokenisation of assets and securities will “revolutionise finance” and that it represents “the next generation of markets”.
RWAs (as they’ve been acronymised) are simply assets (real estate, commodities, precious metals, you name it) in the physical world or offline that have been tokenised.
Why do that? For a start, when tokenised they can be brought into the yield-bearing world of DeFi with potential to serve as collateral.
“RWAs are a long-term, high-growth opportunity driven by the implicit demand of crypto users for higher yield in DeFi and the increased involvement of traditional financial institutions,” noted the Bitget boss.
“What makes it special is RWA projects have emerged both inside and outside the crypto space.
“External developments include Goldman Sachs’ digital asset platform GS DAP, launched earlier this year and facilitated the issuance of a €100 million, two-year digital bond by the European Investment Bank (EIB).
“Additionally, private equity firm Hamilton Lane tokenised a portion of its US$21 billion flagship fund on the Polygon network, offering it to investors.
“Even classic DeFi protocols such as Maker have shifted their focus towards RWAs. By increasing the DSR (DAI Savings Rate) [currently at a whopping 8%], Maker enables regular users to earn from US government bonds.
The rate is so high is because there are currently not that many people using the Dai Savings Rate – only about 8% of Dai holders use DSR currently
This causes the Enhanced DSR system to increase the rate to attract more users. Once more users arrive, the rate will go back down
— Rune (@RuneKek) August 6, 2023
“So for regular, retail users, two of the best ways to participate right now in RWAs is through MakerDAO’s DSR, or the cash-management pool offered by Maple Finance.
“The latter is a DeFi solution that allows participants to invest, through USDT or USDC, in US Treasury securities, meeting liquidity, risk, and accounting requirements to make returns exceeding 4%.
“This trend offers an exciting opportunity for users seeking new revenue streams and the chance to bridge the gap between traditional finance and the decentralised world of DeFi.”
Decentralised Autonomous Organisations, DAOs for short, are organisations completely controlled by their users or stakeholders (in most cases, investors).
They have no central governing body, spreading governance (a set of rules enforced via smart contracts on the blockchain) to all and often use a native token to incentivise network participation.
Why are people in the crypto industry generally into this particular concept? And why is it potentially a game changer?
It’s because DAOs have the capacity (in theory and some very much currently in practice) to create new opportunities for collaboration and cooperation at scale, all the while maintaining markedly increased transparency and accountability in decision making.
Certainly, however, the main web3 use case for DAOs to date has been focused on optimising investment returns on digital assets for organisations’ members.
But Bitget’s Gracy Chen gave us excellent, further insights on DAO benefits, noting the following six key advantages:
- Transparency: All decisions and transactions are conducted on a public blockchain, ensuring transparency and auditability.
- Democracy: DAO decisions are often based on the votes of token holders, allowing every member to participate in the decision-making process.
- Decentralisation: Without a central authority or intermediary, it reduces potential corruption and control risks.
- Flexibility and Adaptability: DAOs can adjust quickly based on the needs and wishes of its members.
- Reduced Operating Costs: Due to the absence of traditional management structures and intermediaries, some administrative and operational costs may be reduced.
- International Collaboration: DAOs can operate across geographical boundaries, pooling talent and resources from around the world.
“MakerDAO, behind DAI, is perhaps the most well-known DAO project,” added Chen when we asked her to name specific DAOs she likes.
“It typifies a “Protocol DAO”, managing a decentralised protocol through a DAO mechanism.
“Members use tokens to vote on the development and operation of the protocol, such as where it should be deployed on a second-layer network, how to manage the community treasury, and whether new features should be introduced and so on.”
Established in 2018, and now serving over 20 million users in more than 100 countries, Bitget is one of the world’s most reputable and popular cryptocurrency exchanges, offering Copy Trading services as one of its key features.
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This article was developed in collaboration with Bitget. None of the information presented here represents financial advice.