The best way to understand Web3 in its current form is to simply see it as what it is: A branch of the entertainment industry.
There’s nothing wrong with entertainment. Some of the most valuable companies in the world, such as Disney and Netflix, are entertainment companies. Most of Facebook is entertainment, as are big chunks of Google, Apple, Amazon and Microsoft. You could argue that LVMH, Europe’s most valuable company, is an entertainment firm, just making fun handbags instead of fun movies.
It’s obvious that all of Web3’s components today have almost exclusively an entertainment value: Cryptocurrencies are for gambling. NFTs, like the traditional art market, are for status signaling and speculation. Most corners of the DAO and DeFi scenes have the characteristics of an enthusiast hobby, not something that can credibly scale to mainstream acceptance.
What do we know about the entertainment industry? It’s very hit and brand-driven, very volatile and unpredictable. That’s why the financial winners are the creators of the hits, but much more so the aggregators that accumulate winning IP and milk it — how many Star Wars spin-offs did Disney create since buying the franchise? — and the providers of infrastructure, such as casino chains.
You can already see the exact same patterns in Web3. The most valuable companies are aggregators (Opensea) and infrastructure providers (Coinbase). And obviously volatility is quite dramatic.
Can Web3 grow up and fulfill its promise of decentralized finance? Maybe, but it’s not very likely. Web 1.0 and 2.0 didn’t deviate much from their original focus and for instance failed to solve finance, and not for a lack of trying. The current Web3 infrastructure is so far away from the necessary scalability and reliability that it’s going to be a very long way. Yes, of course most new tech starts out as something that feels like a toy, but that doesn’t mean that toy = certain future disruption. When incentives reward a particular pattern and business model in the short run, it’s hard to motivate people to build for the long run. That’s the entertainment trap that Web3 is currently stuck in.
Originally published on LinkedIn, Jan 7, 2022
