I. What is Web3?

(A) Concept definition

Web3 is an application based on blockchain, artificial intelligence, big data, cloud computing, rendering and 3D modeling, aiming at solving the problem of data ownership and value expression in the digital world. Different industries have different understandings of it. For example, Gavin Wood, co-founder of Ethereum, described it as "a set of compatible agreements to ensure people to act for themselves in a low-barrier market"; Wang Leqing, the head of Tencent's credit chain, thinks that it can be regarded as a non-immersive meta-universe to solve the problem of asset transfer and circulation; Eric Schmidt, the former CEO of Google, thinks it is a collection of many applications. Generally speaking, the core of Web3 is to realize users' ownership and control of digital content, and distribute benefits through agreements, such as using smart contracts to achieve efficient, accurate and credible value distribution, and the whole process can be audited.

(2) Development history

In 1989, Tim Berners-Lee, a British scientist, submitted a proposal about "building a hypermedia information retrieval system on a global scale" and named it World Wide Web, which was the first time that the concept of Web appeared. Web1.0 is the early stage of Internet development, from about 1991 to 2004, characterized by static web content and limited user interaction, and users can only passively accept content, representing companies such as Netscape, Yahoo and AOL. Web2.0 corresponds to the mobile Internet. Users can become content providers and communicate with other users. The technologies include AJAX, Web API, etc. The representative companies include Internet platform companies such as Facebook, Apple, Google, Microsoft and Amazon, as well as service intermediary platforms such as Taobao, Meituan and Didi, and content social platforms such as WeChat, Weibo and Tik Tok. But in Web2.0, users can't control their own data, and the data is monopolized by large technology companies. In 2014, Gavin Wood, co-founder of Ethereum, put forward the concept of Web3.0, aiming to realize that information is published and kept by users themselves, and users can retain ownership of their own contributions and get a certain degree of return.

Second, the characteristics of Web3

(A) six characteristics and advantages

Decentralized operation: Web3 has no fixed central organization to participate, which avoids the abuse of power by the platform. For example, trading with Uniswap, the platform will not control any data of users. This decentralized structure eliminates the risk of single point failure and improves the flexibility and autonomy of the network.

Unified identity authentication system: In Web3, users can use 99% of applications only by having a decentralized wallet, which saves users the energy of managing multiple account passwords.

Data confirmation and authorization: the content generated by users on the Web3 platform and the equipment in the blockchain game belong to users themselves, and the platform has no right to take it away or control it. Users can also authorize these data to other platforms for use and get benefits in the form of payment.

Service uninterrupted: Because Web3 is based on blockchain network and is a decentralized network, service will not be interrupted as long as there are nodes running. Although theoretically all nodes stop running at the same time, this probability is not great.

Privacy protection and anti-censorship: In Web3, users' personal real information will not be disclosed to the platform in general, and it is difficult for censors to track users easily. But this does not mean that users can do whatever they want, and illegal and criminal things must not be done.

Low barriers to entry: When using the financial services of Web3, users' credit information and assets will not be examined. When users borrow money, they only need collateral to get loans, which is very convenient for ordinary users.

(2) Unique functions

Decentralization: Web3 relies on blockchain technology to distribute data on computer networks, rather than on central servers. For example, Ouyi OKx, as the world's leading digital asset trading platform, embodies the decentralized characteristics of Web3.

Security: The data in the blockchain is immutable and cannot be changed or deleted once recorded, which provides enhanced security and protects users from data leakage, hacker attacks and fraud.

User ownership: Web3 gives users the ownership of their own data and online identity. Users can control who can access their data and get rewards by contributing data.

Transparency: Blockchain is a public ledger, and the stored transactions are transparent to everyone, providing trust and accountability and reducing the possibility of corruption and fraud.

Interoperability: Web3 protocols and applications are designed to be interoperable, and can easily communicate and share data with each other to create an open and extensible ecosystem.

Programmability: Smart contracts on the blockchain allow developers to create applications that automatically execute contracts and processes, which improves efficiency, reduces costs, and provides new automation possibilities.

Artificial intelligence: Web3 integrates artificial intelligence for data analysis, prediction and personalized experience. For example, in the field of decentralized finance, AI can analyze market data and automatically implement trading strategies to optimize users' investment income.

Personalization: Web3 uses user data to provide personalized experience, and customizes content and services according to users' interests, preferences and behaviors.

Third, the future prospects of Web3

(1) Integration with AI

The integration of Web3 and artificial intelligence has great potential. From the scalability point of view, although the current Web3 ecosystem includes many blockchains, two-tier networks and application chains, many "information islands" have been formed due to the lack of local communication ability between blockchains and external systems. The introduction of an intelligent agent program with independent decision-making and execution ability, namely AI Agent, can break the "information island" between different blockchains and provide users with a better cross-chain experience. For example, in a complex multi-chain Web3 environment, AI Agent can automatically select the most suitable cross-chain solution according to users' needs and specific conditions to realize seamless connection between different blockchains.

At the same time, in terms of security, AI can monitor and analyze the Web3 system in real time, discover and respond to potential security threats in time, and protect users' assets and privacy. For example, the large-scale language model of blockchain proposed by Berkeley RDI aims to provide an infinite search space, which is not limited by predefined rules or patterns, and can directly detect a wider range of anomalies, providing a new guarantee for the security of Web3.

In addition, Web3 technology can help us fight against the wrong information of AI with the notarization function of blockchain. Content developers can hash articles or videos, create digital fingerprints and record them on the blockchain, and use public key signatures to ensure the authenticity and integrity of the content. The integration of AI and Web3 is also expected to provide a new way to improve privacy and data ownership, and provide decentralized data storage and management through blockchain technology, so that users can have control and visibility of data and reduce the monopoly of centralized cloud service providers.

(B) the application potential

Around the individual economy, the application layer of Web3 and AI has great potential. In this new ecosystem, individuals can directly participate in economic activities and have more rights to control their own data and assets. Everyone can participate in innovative business models through AI-assisted smart contracts, digital identities and other technologies to achieve a more just and transparent economic system.

For example, in the field of decentralized finance (DeFi), AI can help users automatically execute trading strategies and optimize returns by analyzing market data. In supply chain management, the combination of AI and blockchain can track the flow of goods in real time and ensure the transparency and efficiency of the supply chain. In the future, the combination of Web3 and AI will also bring more innovative application scenarios in smart cities, medical care, education and other fields.

(C) Return to "people-oriented"

At present, Web3 still faces challenges in terms of interaction, speed and ease of use. Compared with the large-scale language model built by GenAI, such as ChatGPT, there are relatively few adopters. However, with the integration of Web3 and AI and the continuous development of technology, Web3 is expected to return to "people-oriented" again.

By introducing AI Agent, the threshold of Web3 is lowered and the user experience is more convenient. At the same time, the integration of Web3 and AI will lead the innovation of Internet technology and realize the deep integration of virtual and reality. For example, in the field of marketing, "Starbucks Odyssey Plan", as one of the biggest brands entering the NFT world, attracts new users for core retail stores by establishing a brand-new digital network effect, at the same time brings more value to existing users, attracts Z generation to contact brands, returns to consumers and builds communities, which embodies the "people-oriented" business form.

In a word, Web3 has a bright future. Its integration with AI, potential in the application layer and the trend of returning to "people-oriented" will bring us a more intelligent and decentralized digital future.

Fourth, the development status of Web3

(A) the accelerated development of technology

2023 is the explosive growth year of China's Web3.0 technology, witnessing the rapid rise of artificial intelligence, blockchain and other technologies. The national standardization of Web3.0 related technologies, especially blockchain technology, is accelerating. For example, the number of published blockchain technical standards in China has exceeded 300, covering national standards, local standards, and group standards. The application of Web3.0 is not limited to cryptocurrency, but also extends to many fields, such as metauniverse, decentralized finance (DeFi) and non-homogeneous token (NFT).

Despite its rapid development, Web3.0 still faces challenges in scalability, ease of use and user experience. In addition, the finiteness of application scenarios and market bubble are also issues that need attention at present.

(B) the overall trend of the industry

In 2023, the total financing amount of the Web3 industry reached 9.043 billion US dollars. Stimulated by the bitcoin spot ETF, the BTC price ushered in a breakthrough after repeatedly testing the 30,000 mark, and the market was bullish. The financing performance of different tracks is different, and enterprise-level infrastructure and wallet direction are favored by capital. In the DeFi trend, DEX is fiercely competitive, and derivatives and RWA have attracted much attention. The total financing amount of CeFi track has declined, but the bitcoin ecological opportunity has attracted much attention from capital.

According to NYDIG statistics, as of October 2023, Bitcoin has become the best performing asset among the 40 selected asset classes with a growth rate of 63.3%, exceeding the growth rate of 28.2% of the US market growth stocks and other major asset classes. Kaiko Research's analysis shows that despite the tight macroeconomic conditions and the headwind of the encryption industry, the increase of Bitcoin in 2023 still exceeded 160%. The event of halving bitcoin will take place in Q2, 2024. In history, the price of bitcoin has increased significantly after every halving, but it is also accompanied by an increase in volatility. On the demand side, according to Glassnode data, as of December 22, 2023, the number of non-zero balance bitcoin addresses has exceeded 50 million, reflecting the growth of the user base.

The bitcoin spot ETF market performed well, with the transaction volume exceeding $1.8 billion on January 16th, which was three times the total of 500 other ETFs on the same day. The transaction volume in the first three days was nearly $2 billion. It mainly includes funds managed by Grayscale, BlackRock and Fidelity. The head of foreign exchange research at Standard Chartered Bank predicts that the capital inflow may reach 50 billion to 100 billion US dollars in 2024.

(C) the characteristics of asset development

The essence of the four waves of innovation in Web3 industry is to find the original assets with the greatest consensus. In 2023, the number of Web3 developers increased by 66% year-on-year, and the Ethereum ecology has an overwhelming advantage. Hot sectors are concentrated in traditional fields such as DeFi, L1/L2 and GameFi, but opportunities for compliance and social orientation are becoming an important consensus in the market.

Stanford produces the most Web3 practitioners, and Google has the highest project financing amount. Web3 hot plate rotation: L1/L2, DeFi and GameFi are still the most concerned tracks in the market. In 2023, more than 10 institutions led at least 8 times. HashKey Capital ranks first in the number of annual investments for the first time, and it is widely distributed in infrastructure, DeFi and other directions in the Asia-Pacific region. DWF Labs has become the dark horse of the year, mainly investing in projects that have been issued and the market is not hot.

(D) the characteristics of capital flow

In 2023, the style and activity of Web3 investment institutions were different. HashKey Capital has a large-scale layout in the direction of infrastructure and DeFi in the Asia-Pacific region; DWF Labs mainly invests in projects that have issued money and the market is not hot. The linkage of primary and secondary markets promotes the industry to a new cycle, and the primary and secondary conduction paths of Web3 industry are short, indicating that the primary market is gradually entering the track of recovery and growth.

Since the third quarter of 2023, a number of funds have announced the completion of fundraising. Web3 Fund Lightspeed Faction announced the completion of fundraising of 285 million US dollars (over-raising by 14%), Standard Chartered Bank and Japanese financial giant SBI launched the Web3 Fund of 100 million US dollars, and the Web3 Fund CMCC Global supported by Li Zekai completed the fundraising of 100 million US dollars.

The first-and-a-half market has become a new choice for investment or withdrawal. Among the 45 projects on the first-and-a-half market of RootData, the OTC valuation of Fireblocks has retreated the most compared with the financing valuation, reducing by about 4 billion US dollars. Both Copper and Dune Analytics have retraced their off-site valuations of about several hundred million dollars. EigenLayer has a strong performance, and the over-the-counter transaction valuation of $2.5 billion is now five times that of the latest round of financing valuation of $500 million. The off-site valuation of Aleo, LayerZero and other projects is relatively stable.