Crypto for Advisors: Web2 to Web3

In today’s issue, Kelly Ye, portfolio manager and head of research at Decentral Park Capital, discusses three rapidly growing blockchain ecosystems and how the combination of Web2 and Web3 will increase the adoption of blockchain technologies.

In Ask the Expert, A. Rafay from Zignaly answers questions about on-chain fund management.

–SM

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How the Marriage of Web3 and Web2 is Driving Mass Adoption in Crypto

This year, we’ve seen significant progress in crypto with the launch of spot BTC and ETH ETFs. While this is being hailed as a step toward mainstream adoption, real adoption must come from on-chain usage rather than mere ownership. Bootstrapping users is difficult, even with tokens as financial incentives, due to unconventional steps like creating a wallet with long seed phrases and acquiring cryptocurrencies to pay for gas. These hurdles, along with poor perceptions of blockchain security and concerns about fraud, have driven many users away.

But three rapidly growing blockchain ecosystems are addressing these challenges by combining the strengths of Web2 and Web3 to create a seamless Web2-like onboarding experience while giving users the benefits of sovereign ownership in Web3.

Foundation: Web 2.5 to Web 3

If you have a Coinbase account, congratulations! You’re already on Web 2.5 by accessing crypto through a centralized exchange. While decentralized exchanges and other on-chain activities are alienating crypto-savvy users due to complexity, Base by Coinbase aims to connect Web2.5 users to Web3. Integrated into Coinbase’s mobile and web apps, Base offers easy fiat on-ramps and off-ramps from the exchange. Coinbase’s UI improvements, such as Smart Wallet for a Web2-like login experience and Magic Spend for abstract gas payments, simplify the process. Additionally, Base is developing a vibrant ecosystem with DeFi apps like Aerodrome and Moonwell, as well as social apps like Degen, making on-chain interactions more enjoyable and rewarding.

TONE: Web2 to Web3

While Base targets crypto-savvy users, TON’s potential TAM is even larger, targeting the 900 million users on Telegram. Launched in 2023, Telegram quickly became a top five Web2 social app by users globally and the dominant app in Russia, Eastern Europe, Southeast Asia, and parts of Africa. TON, The Open Network, was initially designed by the founding members of the Telegram team to integrate blockchain into Telegram’s ecosystem. Given Telegram’s multi-country user base and unique geopolitical backdrop, a unified crypto payment rail could be quite beneficial. TON’s integration into Telegram includes seamless wallet creation, in-app purchases, and fiat embedding. Telegram also introduced paid advertising on TON, with a 50% revenue share with content creators.

The story continues

TON has led to significant growth in Web3 applications. Its click-to-earn game Notcoin has attracted over 35 million players and 6.5 million daily active users in just two months. Similarly, CatDeveloped by Asian developers with experience in WeChat mini-apps, the app has reached 20 million users and generated more than $10 million in revenue, marking the fastest revenue growth in the history of Web3 dApps.

Source: Folious Venture

Solana: Web3 Everywhere

Solana, known for its high-performance blockchain, has taken significant steps toward mass adoption with Blinks. Blinks simplifies the process of interacting with blockchain technology by abstracting on-chain transactions into a simple URL that can be embedded into any Web2 business. Users can perform on-chain transactions by clicking on a URL without the need for complex wallet setups. This makes it easy for Web2 businesses to integrate blockchain functionality into their existing operations.

The Internet, created in the 70s, only saw mass adoption in the 2000s. As BTC enters its 15th year of creation, the fusion of Web2 and Web3 is accelerating the adoption of blockchain technology and allowing the mainstream to use and benefit from this new technology. On-chain is the new online.

– Kelly Ye, portfolio manager and head of research, Decentral Park Capital

Ask an Expert

Q: Why are fund managers embracing on-chain fund management?

A: For starters, on-chain fund management allows fund managers to transparently track transactions in real-time. This reduces fraud and other disruptions and increases investor confidence — a key pillar of long-term adoption.

Automation with on-chain transactions and smart contracts directly reduces fund management costs and other administrative overhead. From securities transfers to payments, on-chain systems can be significantly more efficient than traditional methods.

Additionally, unlike their tradFi counterparts, on-chain assets are unlimited, available 24/7, and offer near-instant payouts.

Fund managers are gaining access to broader asset classes, such as tokenized real estate, NFTs, and new revenue-generating sectors such as DeFi and yield farming. This is enabling products and services that would be unthinkable in traditional fund management.

Additionally, on-chain fund management systems are as secure as the underlying blockchains, allowing firms to retain full custody of funds rather than relying on a third party. This strengthens trust in on-chain fund management.

Q: How will the rise of on-chain fund management impact traditional financial institutions and business models?

A: Sooner or later, they will also come to the chain.

TradFi institutions can no longer afford to ignore transparency or keep their costs high. They must embrace new and innovative technologies to stay relevant and competitive.

The shift has begun. BlackRock’s BUIDL fund is riding the tokenization wave and recently surpassed $500 million in value. Meanwhile, VanEck, 21Shares, etc. are pushing SOL ETFs that come after BTC and ETH.

There is also increasing demand for tokenized assets, smart contract-based services, decentralized AI-based systems, and other related technologies.

– A Rafay, co-founder of Zignaly.

Continue reading

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The German government completed its Bitcoin sale on July 12.

Note: The opinions expressed in this column are those of the author and do not reflect the opinions of CoinDesk, Inc. or its owners and affiliates.