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Get used to hearing the term “Web3” because it could eventually replace “crypto” as the go to moniker for the decentralized tech movement. It plays better to new audiences, it’s less scary sounding to regulators, and it’s a faster and more accurate meme. Mason defined Web3 as the “paradigm shift towards a more democratized Internet” governed by the collective. Chris Dixon says Web3 gives us “the chance to upgrade networks into crypto asset centered economies, and build systems where the incentives of network owners, network participants, and thirdparty developers are fully aligned.” I like those definitions. Rearchitecting internet services and products so they benefit users rather than gatekeepers is a clear and urgent mission, and Web3 accurately captures the breadth of what we’re attempting to (re)build.

For that reason, I’m starting the second half of this report with a section on: the Web3 apps that exploded onto the scene in 2021, non-fungible tokens (“NFTs”); the networks with likely 2022 breakout potential (play-to-earn games and decentralized social networks); and an overview of the physical plumbing of our future metaverse. In investing, there’s a saying that “early = wrong”, which is why it’s important to drill down on the sequential buildout of Web3 and see whether now is actually the time some of these networks might finally come to fruition and win big.

Linda and Rhys seem to have similar mental models that match mine: The 2020 DeFi boom supplied the “throughput infrastructure” of self-custodied, permissionless trading (like routing and bandwidth in Web1), which allowed NFTs to take off. The explosion of demand for NFTs (plus DeFi) pulled forward demand for more scalable Layer 1 and Layer 2 blockchains earlier this year. All of that will spur growth in DAO infrastructure in the new year:

NFTs provide on-chain identity and reputation for DAO contributors; DeFi gives DAO members massive liquid pools of capital to govern; and scaling solutions will make on-chain governance economically feasible. In Web3, cryptocurrencies (Chapter 3) and NFTs (Chapter 6) are the digital goods of the new economy, DeFi (Chapter 7) is the native financial system, Layer 1 networks (Chapter 8) are the rails that power everything, and DAOs (Chapter 9) are how the frontier gets governed. It’s all coming together, and it’s going to be absolutely beautiful.