In the same way we program computers with code, they can now program people with monetary rewards
In the same way we program computers with code, they can now program people with monetary rewards. It has previously been too difficult to incentivise people over the internet to cooperate and do something for a collective purpose. Now because of Web 3, people are forming entire communities where they are rewarded with tokens based on their engagement.
Web 3 companies are attacking incumbents with this new value proposition. Fundamentally, Web 3 companies look like normal software businesses, but they are also payment companies.
Spotify is being disrupted by Audius, Substack by Mirror.XYZ and Facebook by Bitclout. All these new companies offer conventional services like music streaming but with radically different payment models. For example, Audius provides artists with 90% of royalties and it all occurs on the blockchain.
Whether these will be successful is up for debate. However, the development teams behind all these Web 3 projects both need and choose to use Web 3 developer tools.
For those from a non-developer background, it can be needlessly complex to look at a graph like this. Really all that matters is that the developer stack for Web 3 companies is completely different. The stack is different for two reasons:
Blockchain payments require a different back-end provided by blockchain native companies e.g Chainlink
Development teams prefer using decentralised services over legacy software for non-blockchain purposes e.g. Arweave over AWS.
The distinction is important, as everyone understands that a blockchain company needs a different back-end for smart contracts but increasingly developers are using new decentralised companies for everything in the stack.
Take, for example, storage.
Instead of using the AWS cloud to store user data for Web 3 applications, developers are using decentralised storage like Filecoin and Arweave. It’s happening to more things, for example, instead of using a legacy Domain Name System (DNS server), Web 3 companies are relying on decentralised DNS such as Handshake. If Web 3 companies get momentum, there could be a disruption of the entire developer stack as crypto companies take over B2B SaaS.
Web 3 could be a spectacular failure. Large software companies may already provide a service that most customers love, without blockchain. Many are quick to point out that there has not been a ‘killer’ blockchain app with mass adoption. However, we believe there will be certain software models where an embedded finance feature provides a 10x better experience for users.
Think of payroll.
Getting paid on the last Friday of each month is a fairly bad experience as it leaves employees with cash flow problems. Imagine if employees could be paid in real time, each minute they work, they receive funds. Employees of Web 3 companies may well be able to, with services from companies like Superfluid. Web 3’s payroll.
We want to back Web 3 companies like these that provide a 10x better experience for consumers and developers.
In January 2000, nearly 12 out of the 61 prime time ad slots for the Superbowl were for dot-com companies. Many were going public before even making a profit. Price to earnings ratio reached 200 for the Nasdaq Composite Index. It was the peak of the dot-com boom. Venture capital money was flowing into anything with internet appended to it, in the hope of owning a piece of the future.
In 2001, the bubble burst. Internet companies were savaged on public markets, companies went into liquidation and luxurious dot-com office chairs were sold en masse. Amazon’s share price crashed and Cisco Systems alone lost 86% of its stock value.
Investors were reluctant to invest in software companies in the aftermath, many thought even Amazon was doomed to fail.
But the internet well and truly lived up to its dot-com hype, it just took a few cycles to get there. Crypto in the 2020s has many parallels to the dot-com era, companies going ‘public’ (initial coin offering) before making a profit, the renaming of stadiums & even higher price-to-earnings ratios.
Web3 may be nearing the top of its hype cycle, and while no one can predict the future — it’s likely there will be more corrections yet to come. But at Aura Ventures we believe in the power of the underlying blockchain technology to change the world by creating the next generation of the internet (Web3).
For this reason, we believe the infrastructure to build Web3 needs to be expanded to establish a strong foundation for the next decade of consumer crypto companies. To reach one billion users, a lot of the back-end infrastructure is yet to be built. Blockchain technology is just getting started.
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