For Web3, the proverbial calm before the storm seems to have taken an unusual turn. Over the past few years, the storm has already swept through the sector, leaving behind a strange calm for both investors and founders.
What went wrong for an industry that, at one point, was the next big thing to hit the techno-financial world? The last two years have been marked by a strong decline in Web3 investments – while in the July-September 2021 period Web3 startups raised $8 billion, the same period this year saw startups raise a pale $1.3 billion in comparison.
The fall of FTX and the collapse of other major crypto projects, the near-endless crypto bear market, the sad fate of NFTs, and the slow adoption of the metaverse have all contributed to the implosion of the Web3 space, experts say.
CEE startups and businesses have also felt the consequences. For Sally Meouche – Ghrawi, managing director and co-founder of Bulgaria-based consultancy Web3 4pt.O Venture Labs, many factors and black swan events such as the collapse of FTX have had a direct impact on what currently happening in the industry. However, the situation also has advantages, she says.
“These events have triggered collective introspection, raising crucial questions about our shared role in these developments and why we failed to anticipate them. This has therefore led to a positive shift towards more regulatory-focused discussions and proactive risk-aversion and problem-solving strategies for the future. Additionally, this served as a cleansing wave, removing bad actors from the market, which is visibly visible by Binance and CZ (Changpeng Zhao, the former CEO of Binance) takes responsibility for all of this,” Meouche – Ghrawi told The Recursive.
As a result, extremely frosty market conditions are taking a toll on many Web3 projects.
“It’s been a wild ride in the Web3 space, that’s for sure. We have witnessed very cold market conditions and curating of existing projects. But the survivors, the ones who keep building, are the real warriors pushing the space forward,” says Filip Milosheski, head of growth at the first major regional blockchain hub. CLOSE to the Balkans.
The decline of the Metaverse and its effect on Web3
The decline in the appeal of the Metaverse has also affected Web3, since the space is primarily seen as the vessel that gives consumers ownership and control of their digital assets and data in the Metaverse itself.
Sandra Helou is the CEO of Dubai-based Metaverse company MetaMinds Group. His company offers different types of Metaverse solutions for creating, deploying and managing large-scale virtual environments.
According to Helou, the main problem in the Metaverse space was that many startups and companies had unrealistic business models, which ultimately led to failure.
“You can’t have rare earths in the Metaverse, but yet people were paying up to $5 million for what’s online on Decentraland and Sandbox (popular Metaverse games) and a few other environments,” Helou explains.
The cooling of the Metaverse hype has helped companies redefine their business models and eliminate a lot of noise in the process, she claims.
“I think the conversation has completely changed and more and more people are interested in how these business models apply to the industry. Because we got to a point where companies took a lot of money from investors, and then they realized that “oh, we hired a lot of people, we’re not making any revenue here.” So it’s one thing to have money in the bank, but you have to balance that with the income coming in. And I think that’s why and I’m happy that it happened by the way because it really freed up a lot of space,” Hélou tells The Recursive.
Furthermore, the DeFi space has also seen its shortcomings, which has further harmed the sector, experts point out.
“In 2023, the DeFi space has seen numerous security breaches, leading to several projects being compromised. It was a Wild West of vulnerabilities, a stark reminder that the crypto world wasn’t all rainbows and unicorns. Over the year, more than $1 billion was stolen, highlighting the vulnerability of these projects to malicious attacks,” Dmitry Mishunin, CEO of blockchain security platform HashEx, told The Recursive.
The Road Back and the Possibility of a Web3 Resurgence
According to Mishunin, there is a way back, however, and it comes in the form of increased regulation through regulatory bodies that should bring order to the crypto chaos.
“This increased oversight is intended to bring a level of accountability and regulation to the sector. Security will be a top priority in 2024. Gone is the luxury of losing millions without consequences. Legal proceedings, fines and even time behind bars: the consequences will be serious. This is a wake-up call, and the industry is preparing to spend big to strengthen its defenses,” explains Michunin.
The past year has also seen some notable moments, such as the rise of Zero Knowledge. evidenceimprovements to blockchain interoperability, a more user-friendly Web3 space, and the promise of even greater integration between blockchain and AI, says Milosheski of NEAR Balkans.
“What awaits us in 2024 is certainly exciting: blockchain and AI are one of the first things that come to mind. The focus has already been on account abstraction and chain abstraction, and blockchain interoperability is still the focus. We will see the rise of dynamic NFTs and regulatory clarity,” Milosheski told The Recursive, adding that there could also be additional issues.
“Large-scale battles, speed bumps and abuse of technology for fraud purposes. So it’s important to stay vigilant and always remember Web3 101: Do your own research,” he adds.
For Web3 founders like Meouche – Ghrawi, 2024 will also be the opportunity for a renewed social interest since the market has matured and now offers products with real applications;
“We will likely see substantial growth in real-world assets, something that was lacking in less mature markets of previous cycles. Additionally, gaming NFTs could become a major use case, especially as major gaming studios begin to explore this space. With regulations becoming clearer and larger players entering the space, we can expect the introduction of spot ETFs, which will likely attract substantial interest outside of the web3 sector,” concludes Meouche – Ghrawi.
