The Breakthrough Path of the Web3 Ecosystem: Investment Layout and Entrepreneurial Opportunities

The Web3 user base is continuously expanding, with the number of independent addresses for Ethereum domain services surpassing 500,000 by the end of July this year. Since 2017, Web3 infrastructure has been gradually improving, evolving from the initial "muddy path" to an "asphalt highway." However, the prosperity of the industry ecosystem is still closely related to market cycles, and the value of on-chain data has yet to be fully tapped. New application scenarios and user interaction mechanisms are still to be developed, and the Web3 industry remains on the eve of an explosion.

Recently, several investment professionals gathered to discuss their views on the current development status of the Web3 industry, investment layout strategies, and observations on the entrepreneurial ecosystem. The following is a整理 of the relevant content:

Core viewpoint:

• Composability and a unified database are the greatest values brought by blockchain technology.

• Web3 redefines the value of data; how to develop this data gold mine is a highly promising innovative direction.

• Value creation at the application layer stems from new mechanisms and interaction methods, rather than simply transforming traditional Web2 products.

• The explosion of Web3 is still in its early stages, and entrepreneurial teams should focus on finding real product demands and target users, rather than blindly following the trends of a bull market.

The Development of the Web3 Industry from an Entrepreneur's Perspective

From 2017 to 2021, the Web3 industry experienced a transformation from "muddy paths" to "asphalt roads." Four years ago, developers or entrepreneurs entering this field faced many challenges. Compared to Web2 entrepreneurship, the limitations of Web3 infrastructure are greater, and entrepreneurs need to have a clear understanding of the boundaries of what is feasible and what is not. In these four years, the middleware and protocol layers achieved breakthroughs from 0 to 1, and the application layer also welcomed its first explosion against the backdrop of gradually improving infrastructure, currently progressing from 1 to 100 and even from 100 to 1000.

The gaming, NFT, and metaverse sectors are still in their early stages. It is worth noting that many current leading projects were born at the end of the previous bull market and the beginning of the bear market, rather than during the recent bull market. These companies went through a tough financing process, with Axie and Sandbox being valued at only $15 million when they raised funds at the end of 2019, while the starting valuation of Web3 projects now easily ranges from $20 million to $50 million.

The core value of blockchain technology

After years of thinking and practice, the core values brought by blockchain technology are mainly reflected in two aspects:

1. Composability (Interoperability): This is reflected in the permissionless combination and invocation at the code level, as well as the native interoperability of digital assets across applications. This "Lego logic" has enabled rapid industry development, with numerous possibilities explored in the DeFi space in just a few months in 2020.

2. Unified Database: This means connecting the massive data behind Web2 applications, allowing users to log in to various applications with a single Address, forming a huge value database.

Based on these two points, two important investment themes emerge:

1. Data: on-chain data is a "gold mine". Each Address is a unique identifier that records user behavior across multiple applications. This publicly visible anonymous data can be comprehensively and efficiently analyzed and mined, from the underlying data sources to the upper layers of data cleaning, analysis, and indexing, and then to various data-based protocol layer projects and application tools. Every layer has the potential to give birth to unicorn-level companies.

2. Application Layer: The next 3-4 years may be a stage of large-scale explosion for the application layer. DeFi has completed the transition from 0 to 1 in terms of user and value accumulation, but tracks such as gaming, social, and NFTs are still in the early exploration stage. The killer application of Web3 is not simply adding wallet login to Web2 applications, but rather combining the underlying characteristics of blockchain to unlock new ways of user interaction through innovative mechanisms and gameplay in specific scenarios.

Opportunities and Challenges for Entrepreneurs

For Web3 entrepreneurs, the following points of advice are worth paying attention to:

1. Reserve enough funds to cope with a bear market, preparing at least 2-3 years of funds to last until the bull market arrives.

2. Focus on identifying real product demand and target users during a bear market, rather than blindly following trends.

3. First become a believer, then become a builder. Only by maintaining a strong belief and love for the industry can one persist through a bear market.

4. Set aside historical burdens and immerse yourself in the industry for a while before deciding on a startup direction. Understand the current state and limitations of the industry to avoid aiming too high.

Characteristics of Web3 Investment

Compared to traditional industry investments, Web3 investments have some unique aspects:

1. Due diligence is quite difficult, as many project teams are scattered around the world and may not have met in person even before the investment.

2. The structure of investors is more complex, with several dozen institutions potentially participating in a round of financing, and each institution needs to provide unique value to the project.

3. The market is not lacking in funds, but rather in high-quality projects. Whether investment institutions can provide added value to projects has become an important consideration.

Investment Focus and Entrepreneurial Traits

Currently, infrastructure and middleware are the investment focus, as the underlying development environment and infrastructure still need improvement. At the application layer, more emphasis is placed on innovative gameplay, mechanisms, and designs.

An ideal entrepreneur should:

1. Have in-depth knowledge of the industry and can provide insights that go beyond investors' understanding.
2. Truly believe in this industry, with the goal of achieving great things.
3. Have an innovative spirit and be able to propose interesting ideas and solutions.

Challenges Facing the Industry

The main challenge currently facing the Web3 industry is that the user base is small and largely consists of users looking to take advantage of opportunities. This reflects issues with the inadequacy of the industry infrastructure and products not meeting users' essential needs. Entrepreneurs need to have a thorough understanding of the current state of the industry, clearly define the boundaries between what is feasible and what is not, and avoid falling into the gap between ideals and reality.

The value of investment institutions

In addition to providing financial support, the core competitiveness of Web3 investment institutions lies in bringing additional value to the invested projects, primarily reflected in two aspects: business and resources.

1. Business support: Deeply involved in product development and strategic decision-making of the project, providing professional advice and insights.

2. Resource Integration: Assist in token economic model design, project cooperation integration, talent recruitment, etc.

The core is to help projects develop in the right direction, pushing them towards a higher stage and a broader market.