Web3 Founders: Here’s Where to Build in 2023
Mainstream crypto adoption, simplified UIs enabled by Web2 brands and Artificial Intelligence to drive innovation in DeFi, GameFi and SocialFi.
By Charlotte Kapoor, head of Innovation Programs at Cronos Labs.
2023 presents a huge opportunity for founders.
Despite the ongoing market volatility crypto’s core principles remain steadfastly consistent; with the space brimming with long-term builders and real believers. In choppy, bearish markets, the environment is much more conducive to long-term success. Without all of the hype that accompanies bull markets, projects can hone their offerings to achieve genuine product-market fit without any unnecessary noise or distractions. Simultaneously, weak contributors become easier to detect enabling strong products/markets to emerge from the market clutter.
Our current market position is unprecedented, unlike anything crypto has seen in previous winters. In 2015, securing capital was a significant challenge even for many of today’s unicorns, and in 2018, the tanking cost of ETH caused many ICO-funded projects to buckle under financial strain. Today, with battle-tested foundations, reduced valuations, and clear signals in user behavior there is a large amount of dry powder waiting to be deployed. Many brave investors are taking bets on teams with the knowledge their choices could be the next cycle’s winners. Meanwhile, the influx of tech-savvy workers and industry experts to the labor market has stimulated a new talent pool for startups; quick access to this resource and expertise will facilitate unparalleled levels of growth.
If now is the time for building, the question becomes: what should we build?
With so many dynamics at play, it is important to keep an eye on the overarching trends that shape the space. All successful teams, regardless of vertical or purpose, have one common trait — utility. Utility is the driving force of progress and will be a cornerstone for long-term growth. For token-based projects, finding token market fit is king; as token usage increases, so does public interest — creating an upward momentum in value and innovation, and ultimately mass adoption.
The first macro trend is the continued consumer awareness and adoption of crypto for investment and entertainment purposes. According to Crypto.com Research, the global pool of crypto owners has increased by 39% in 2022, reaching 425 million users. The resulting regulatory attention means that decentralized protocols, like Cronos, will need to partner with regulated fiat on/off ramps, like Crypto.com, in order to serve users.
Blockchain quickly becoming an integral part of enterprise business models, is a trend that will continue as the year progresses. Drawing inspiration from established disrupters like Reddit and Nike (>$185mm from digital collectibles and launch of web3 platform, Dot Swoosh) we’ll see a move beyond cash-grab NFTs, with more pilot programs; with brands and institutions looking at real strategic integration into their ecosystems.
As this transition accelerates, more attention will be spent designing interfaces and experiences that are more intuitive and safer for the average user. These collaborations will have an explosion into mainstream relevance, L’oreal’s NYX’s DAO and Starbucks Odyssey loyalty schemes are good examples. Teams should be thinking beyond fungible tokens and building products that support utility in brand building and customer engagement. Enterprise will bring the customers, builders need to bring the tech.
Finally, we expect new business models enabled by the interplay of AI and blockchain and, in fact, AI is one of the key themes of the upcoming Cronos Accelerator program’s cohort. In the footsteps of ChatGPT, broad-scale generative AI promises to revolutionize content creation and empower communities. Hybrid global communities of humans and machines will be able to use blockchain to transact with each other, to attest identities, and to govern themselves and their data. The intersection of these two powerful technologies has become a highly attractive proposition for investors.
So, how does that translate into specific verticals?
DeFi will continue to gain steam
As DeFi begins not only to make an impact on real-world assets but claim market share, application creators will increase the user-friendliness, security, and utility of DeFi dApps.
Successful projects will need to be creative and make strides toward real innovation.
This could be through capital efficiency, enabling deep cross-chain composability, or by providing new tools and markets for end users. Derivatives created industry growth in the last bull cycle and will be a dominant force in market evolution. GMX, a decentralized exchange providing spot and perpetual trading, was one of the success stories of 2022; this rise exemplifies the growing need for sophisticated analytics and trading tools. This demand is mirrored in the NFT asset class, with Blur, the marketplace for pro traders which surpassed the trading volume of OpenSea when it launched in December; as well as the noise surrounding Sudoswap that brings instant liquidity to NFT trading via an AMM mechanism.
Crypto ecosystems are now equipped with a range of tools and features suitable for institutional investors. Most investment banks now have a digital assets desk, and JPMorgan recently completed an experiment involving bank trading with permissioned liquidity pools powered by Aave. Teams that can integrate permissioned DeFi protocols within the distribution channels of traditional finance (including front-end compliance and onboarding) will quickly attract liquidity and users.
Abstracting complexity away from nontechnical users is high on the list of DeFi’s problems to solve. This will include new wallets with no required seed phrase or simple-to-use interoperable hardware, and AI technology to translate human-readable commands into code or detect scams.
As an illustrative example, take AI yield farming where a user makes a request to “deposit the stablecoins in my wallet into the highest yield-generating pool” to discover higher APYs.
Another approach is to push wallets away from the user and use them to power transactions between autonomous machines (something projects like Fetch.ai have been working on quietly for the past 5 years).
Web3 Gaming and Web3 Social platforms provide powerful onboarding mechanisms
Web3 gaming and social products that are fun and accessible will act as powerful gateways for non-crypto users. Founders need to provide unique offerings and value propositions that add something new to traditional games, and deliver seamless onboarding experiences. Gaming ecosystems and studios that are able to experiment and break even with revenue models fast (e.g. ecosystem-specific earning models, staking/ farming) will be able to iterate with learnings to outpace competitors.
Onboarding is also being enhanced through innovations in trust, ownership, and portability via self-sovereign identity and portable social graphs, building a new peer-to-peer creator economy. In 2023 we will see the aggregation layer for identity mature and gain adoption as a unifying interface, accelerating as it unlocks experiences beyond crypto, e.g. through events or e-commerce discounts. Founders building tools for verifiable proof of existence, ownership, and control over identities that find new markets or build on top of the innovation in this sector will be able to leverage this growth and energy. This also presents Web3 Social as a potential boom in 2023 (and it will be through platforms like crypto.com where there is a high retail reach that this social adoption will happen).
Web3 Gaming and Web3 Social are prime verticals for the exploration of innovations at the intersection of AI and blockchain. This will include the use of generative AI to evolve dynamic in-game NFTs over their lifetime, and the creation of more interesting, more interactive non-player characters in casual games.
Infrastructure needs to be more secure and scalable
Finally, for everyone to access Web3 and transition to the world of self-custody we need to provide exceptional user interfaces, underpinned by robust infrastructure.
Cybersecurity incidents have proliferated together with the growth of crypto products and liquidity, with $2.5+ bn dollars of value drained from protocols last year. Solving security problems at scale has become more critical than ever before. Wide-ranging challenges including poor smart contract design, economic model exploits, governance deficiencies, and key security issues mean solutions are complex and multifaceted. Teams raising the standard of cross-chain bridges, custody solutions based on multi-party computation (MPC), and wallet management systems platforms could be useful in removing this major bottleneck for the industry.
Zero-knowledge proofs could also help tackle security and in 2022 became much more accessible for engineers to build with. There are a broad number of use cases for ZK technology and teams effectively using ZK to plug scalability and privacy are well positioned. As scaling progresses the need for teams to store decentralized information securely, remove the complexity to navigate, index, update dynamically, and effectively analyze to support the dApp layer also increases. These all represent great areas of opportunity for founders.
There are standards to set, products to be launched, primitives to develop, users to onboard, infrastructure to test, and bridges to be built. Web3 is starting to share the floor with Web2 founders and companies, and whilst Web3 natives may find the new ways crypto is being used more mundane, the fusion of skills is ushering in wide access to the masses. The backdrop of conditions primed for entrepreneurs means there hasn’t been a better time to build.
Building at the confluence of Cosmos and Ethereum, Cronos widely supports teams at all stages of progress. Find out more about Cronos ecosystem\ grants, the Cronos accelerator program, and more, where you can access Cronos Labs’s $100m ecosystem fund and receive support in all key areas of development.
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