How to Invest in Web3 in 2024? – QIT
Web3 is a decentralized network that enables secure peer-to-peer transactions and communication. Built on blockchain technology, Web3 is transparent, tamper-proof, and free from central authority. Even if one node fails, the network can still function. This decentralization provides people with more control over their personal data, allowing them to store it securely on their devices and providing greater privacy and security on the Internet. It is tempting for us to become a part of this revolution, so many start thinking on how to invest in Web3. We will try to clear this topic in this article.
Benefits of Web3
The benefits of Web3 go beyond privacy and security. The decentralized network will also provide new opportunities for collaboration and innovation. Individuals and organizations can collaborate more securely and transparently on projects and initiatives.
Smart contracts are a key feature of Web3, enabling self-executing contracts in which the terms of the agreement between buyer and seller are spelled out in code, eliminating the need for intermediaries like banks and lawyers. This will significantly reduce the costs and time required to complete transactions, making it easier for people to work together on projects and initiatives.
Decentralized Autonomous Organizations (DAOs) are another important feature of Web3, providing organizations governed by computer programs encoded on a blockchain network. DAOs can change how organizations are run and bring greater transparency, accountability, and efficiency.
Web3 has the potential to revolutionize how we interact with each other and the world around us, providing new opportunities for collaboration and innovation while giving people more control over their personal data and transactions. However, there are challenges to overcome, including the problem of scalability and user acceptance. Addressing these issues will be crucial for Web3 to truly become the next era of connectivity and collaboration.
As we move into the future, it’s important for individuals and organizations to start learning about Web3 and its capabilities. Whether you’re a tech enthusiast, a futurist, or simply interested in the future of the web, exploring the world of Web3 is worth your time.
Investment in Web3
In recent years, the amount of investment in Web3 has shown a clear upward trend, with the total amount of funding in 2019 standing at approximately $4.25 billion. This figure increased to $4.86 billion in 2020, and a whopping $32.8 billion in 2021, demonstrating the significant growth and potential of the industry.
Who got the money
Until relatively recently, investment in Web3 was largely limited to niche funds with a specific focus on the sector. However, this is no longer the case, and a growing number of global giants such as Sequoia Capital and Tiger Global are now actively investing in Web3 projects. Despite this, funds that specialize in crypto and blockchain startups, such as Coinbase Ventures and Animoca Brands, remain the leaders in the number of transactions on Web3.
In 2022, despite the challenges posed by the crypto winter and the failure of several high-profile crypto companies, the Web3 industry managed to attract an impressive $4.8 billion more in investments than the previous year. This surge in interest was fueled by a range of investors, including major banks like Morgan Stanley and Goldman Sachs, top venture funds like Binance Labs, Coinbase Ventures, and Kraken Ventures, as well as industry-specific funds and grants.
Notably, experts identified several key categories within the Web3 segment that attracted investment, including gaming, metaverse, social platforms, infrastructure, artificial intelligence (AI), and virtual and augmented reality (VR/AR). These categories came to the fore at different times throughout the year, reflecting a change in priorities among investors.
In Q2 of 2022, there was a surge in investment in the metaverse and gaming sectors, particularly in play-to-earn projects such as blockchain casinos, collectibles, and football-themed projects. By Q4, investment strategies shifted again, prioritizing startups focused on VR/AR and AI, such as InworldAI, SingularityDAO, and MarqVision.
Among the most heavily-funded projects were gaming giant Epic Games, which attracted $2 billion from investors, and Yuga Labs, creator of the popular Bored Ape Yacht Club (BAYC) NFT collection, which received $450 million to develop its own metaverse, Otherside. Other notable investors in the Web3 space included Paradigm, Andreessen Horowitz, HiveMind Capital Partners, and Binance Labs.
While investing in the Web3 space carries inherent risks, this surge in funding is a clear indication of the growing interest and potential of this innovative technology.
Investment in Web3 was initially limited to niche funds with a specific focus on the sector. However, a growing number of global giants, such as Sequoia Capital and Tiger Global, are now actively investing in Web3 projects. Despite this, funds that specialize in crypto and blockchain startups, such as Coinbase Ventures and Animoca Brands, remain the leaders in the number of transactions on Web3.
2022 was marked by an increase in interest in investing in the Web3 segment. Money poured into this industry from commercial banks (such as Morgan Stanley and Goldman Sachs), international venture funds, and leading organizations in the field of digital assets (Binance Labs, Coinbase Ventures, Kraken Ventures).
In the 2nd quarter of 2022, millions of dollars of investments were generously poured into the Metaverse and games segment. VCs then shifted their focus to play-to-earn projects, especially blockchain casinos, collectibles, and football-themed projects.
In the 4th quarter, investment strategies changed again. Priority was given to startups developing in the field of Augmented, Virtual, and Mixed reality, as well as platforms such as ChatGPT, representing new technologies in the field of artificial intelligence.
For example, the InworldAI project managed to raise $50 million and $41 million in two funding rounds (Series A and SEED rounds), respectively. Investors have invested $25M in SingularityDAO and about $20M in MarqVision. At the same time, industry participants expect that in 2024 venture investors will not lose interest in the field of AI.
In addition, the volume of funds invested in infrastructure startups focused on cybersecurity issues has increased. This is due to the growing number of hacker attacks and other threats to users in the digital space.
Why invest in Web3?
There are many reasons why you should invest in Web3. Here are just a few:
- The global Web3 market is expected to grow from $24 billion in 2020 to $176 billion by 2025. This is a 700% increase.
- Web3 is a safer and more efficient way to collect and use data.
- This allows businesses to create new, innovative products and services that can be delivered directly to consumers.
- The global web 3 market is still in its early stages, so it has a lot of growth potential.
- This is seen as the future of the Internet.
Key areas to consider for the Web3 investing
Investing in Web3 can take many forms. One way is to buy shares in Web3-focused technology companies like Microsoft. Another investment option is to purchase Web3 tokens or cryptocurrencies through Initial Coin Offerings (ICOs) and trading platforms.
For those who prefer hands-off, investing in Web3 tools can be a great option. These funds invest in companies that develop new technologies for Web3, allowing you to diversify your portfolio without doing deep research. Web3 also overlaps with non-fungible tokens (NFTs) and the Metaverse, so investing in those areas can indirectly give you access to Web3.
1. One way is to buy shares in Web3-focused technology companies like Microsoft. Thus, you will get access to the developments of the Web3 company. In addition, you can invest in startups that create Web3-related products.
2. Another investment option is to purchase Web3 tokens or cryptocurrencies through Initial Coin Offerings (ICOs) and trading platforms. It is akin to buying shares in a company, but directly investing in its success. However, keep in mind that owning Web3 tokens exposes you to both the success and failure of the company, so thorough research is critical before investing.
3. For those who prefer hands-off, investing in Web3 tools can be a great option. These funds invest in companies that develop new technologies for Web3, allowing you to diversify your portfolio without doing deep research.
4. Web3 also overlaps with non-fungible tokens (NFTs) and the Metaverse, so investing in those areas can indirectly give you access to Web3. When investing in cryptocurrencies, remember to maintain a diversified portfolio and invest only the amount of money you can afford to lose.
By following basic trading principles such as buying low and selling high, understanding project goals, and maintaining a diversified portfolio, you can confidently invest in the exciting world of Web3.
Lending
DeFi lending uses a peer-to-peer token system based on smart contracts rather than financial intermediaries.
With DeFi, anyone can become a lender. Protocols like Aave and Compound reward users for depositing assets (often stablecoins) into credit pools for others to borrow. Transactions are executed automatically and secured by smart contracts. After some time, the smart contract pays interest to the lender, often in the form of the protocol’s token. Interest is part of the fees paid by the borrower – interest rates on DeFi loans can vary from 1% to 20%.
The Annex credit system, which operates within the Kava Web3 ecosystem, offers an annual return of 1.42% for depositors who deposit USDC stablecoin assets internally. Annex reports that the total volume of transactions amounted to more than $200 billion.
These loans can also be cheaper for borrowers. Traditional financial institutions receive higher premiums on riskier loans. In the world of cryptocurrencies, most loans must be over-collateralized. In the event of a default on a crypto loan, smart contracts automatically compensate the lender. Lower risk often means lower interest rates for the borrower.
However, at present, overcollateralized loans are not necessarily ideal for borrowers. People who need money to run a business or pay for education are unlikely to have collateral for more than 100% of the loan they are asking for. In these cases, traditional financial institutions are better suited for credit rating and risk-taking. However, some protocols are experimenting with ways to verify creditworthiness on the blockchain and offer loans with insufficient collateral.
In the future, this technology could be used to support under-collateralized crypto lending. It will also mean significantly increased risk for DeFi lenders.
Insurance
This category includes two types of Web3 insurance companies: those that use decentralization to support traditional insurance, from flight delays to crop insurance, and those that develop insurance to protect digital assets such as cryptocurrencies and NFTs.
Etherisc falls into the first category. In 2022, the German-based company announced the release of its blockchain-based travel delay and cancellation insurance called FlightDelay. The product uses smart contracts to provide payouts for flight delays of 45 minutes or more. It covers around 80 airlines and provides payouts in cryptocurrency.
Web3 social networks are also looking for alternative sources of income to survive without user data collection and advertising. The Web3 Brave browser allows users to earn tokens for viewing ads; this may become the norm for Web3 social networks. Meanwhile, platforms like Entre and Diamond allow users to buy tokens that they can use to reward their favorite content creators.
In addition, developers are creating a completely new blockchain infrastructure for the development of social platforms in Web3. For example, DeSo is building decentralized protocols that support the infrastructure needed for social networking on Web3, including cross-platform collaboration, decentralized messaging, and token rewards for creators. In September 2021, the company raised $200 million from investors including Andreessen Horowitz, Sequoia Capital, and Coinbase Ventures.
While the idea of an ad-free social media platform where user data is protected sounds tempting, it’s not entirely clear how successful Web3 companies will be in persuading users to invest time and money in earning tokens when Web2 social media platforms are mostly free.
Not to be ignored is the social network Mastodon, which attracted hundreds of thousands of Twitter users who began to look for new sites after Elon Musk bought Twitter. UIA Mastodon has grown 8 times: from 300 thousand users to 2.5 million. At the same time, Mastodon remains a private company that does not report on the amount of investment.
DAO and crowdfunding
Web3 is also changing how communities come together and raise money to achieve common goals through Decentralized Autonomous Organizations (DAOs).
DAOs are blockchain-based governing bodies. To join the DAO, a person must become a stakeholder, which requires them to purchase a DAO token. These tokens use smart contracts to give stakeholders a voice, allowing them to influence how an organization will operate. By giving members a voice, communities can feel more involved.
LinksDAO is a community of golf enthusiasts who pool their money to purchase and maintain an exclusive golf course. LinksDAO’s goal is to create a golfing environment with benefits available only to exclusive members. In the future, DAO members will also be able to profit from the use of golf courses.
Tiger Woods, when he realized that he could increase his fortune to $ 1.5 billion
While it may seem strange, LinksDAO has sold over 9,000 membership cards and raised over $10 million in 24 hours. Other DAOs have even more ambitious goals: The Krause House DAO is building a community to buy an NBA team (owning an NBA team is worth over $1 billion).
But DAOs are not perfect. The DAO Constitution raised about $40 million to win the right to purchase the original copy of the US constitution. When the DAO lost the bet, the money was apparently blocked. Returning money to DAO members has become a time-consuming process. While most of the money has already been returned, millions of dollars have been lost due to “gas” fees, which are the amount of work on the blockchain network that determines how much miners (validators) need to pay to add a transaction. to the block.
Video broadcast
Web3 video streaming services are designed to empower creators by giving them ownership of content and profits while protecting user privacy and data. They are also exploring the use of blockchain protocols for the technical development of streaming services.
For example, Livepeer uses the Ethereum blockchain to reduce the costs associated with hosting and transcoding live video by sharing computing power across a network of blockchain-based computers. Anyone can join the network by providing computer resources (CPU, GPU, and bandwidth). In return, investors receive a reward in the form of cryptocurrency.
In January 2022, Livepeer raised a $20 million Series B round from investors such as Digital Currency Group and Tiger Global Management. Most recently, the startup released a toolkit to help developers incorporate live streaming and NFT video production into their projects.
Music streaming
Web3 aims to provide the best way for creators to monetize their music and engage with audiences without technical intermediaries, labels, or distributors.
Spotify receives about 30% of streaming revenue. In addition, music can only be published to platforms such as Spotify or Apple Music through a label or through an independent distributor. Some may only charge a flat fee,
Blogs and User Content
As personal blogs and email marketing have gained popularity, Web3 companies have been looking to help creators better monetize and own their content.
Startup Mirror publishes content on the blockchain. While the content is free, creators can monetize their work by releasing lyrics as NFTs, allowing them to earn revenue from readers and fans. In June 2021, Mirror raised a $10 million seed round from Andreessen Horowitz and Union Square Ventures at a $100 million valuation.
Play-to-Earn
In P2E games, gamers are rewarded for playing games using tokens.
Axie Infinity is by far the most popular money-making game. Players can fight, breed, and sell “Axi”, NFT-shaped collectible monsters. Axie positioned itself as a game that empowers players – instead of taking all the profits, the game studio shared it with the players.
However, the collapse of cryptocurrencies and NFTs has put these games in a precarious position as user numbers dwindle and company revenues fall short of expectations. Critics point out that most players in P2E games were only interested in speculative purposes – in fact, the players were just investors, and there was no real demand for the NFTs issued by the games.
Although the future of P2E is not entirely clear, venture capitalists are not giving up on them. In April 2022, Axie raised $150 million after losing $600 million in a hack. Meanwhile, blockchain game studio Mythical Games raised $150 million at a $1.3 billion valuation in November 2021 to build Web3 games like Blankos Block Party.
About changes in the cryptocurrency investment market
In 2022, the cryptocurrency market has declined significantly, losing a third of its capitalization. The sector entered the so-called bear market, and all cryptocurrency holders saw how strongly the cryptocurrency market correlates with the key rate of the US Federal Reserve. Bitcoin has not proven to be a suitable way to avoid inflation. All this against the backdrop of a global decline in stock markets, where the technology sector was particularly affected, colossal inflation and the consequences of the coronavirus.
The cryptocurrency market has been heavily impacted by major fund failures, the scandalous crash of FTX, Celsius, the boom of UST, the LUNA scam – in general, there were many “bright events” last year that scared institutional investors, as funds are not safe and the risks were poorly calculated .
“Has this reduced the number of retail investors? Yes. Most work on the opposite principle: buy high, sell low at a loss. Has this reduced the number of funds and large investors? No. Funds have increased investment in web 3.0, projects are also closing even seed rounds, non-crypto companies continue to develop blockchain-based solutions, all in a bear market and massive tech layoffs. For most market players, it is obvious that the future belongs to cryptocurrencies, the only question is the speed of innovation development and the arrival of a regulator to manage these innovations,” Anna said.
Criteria for selecting startups
According to the experts, approaches to the selection of startups for investment have not changed in general. Venture capital funds are investing in trends and infrastructure projects, while it is clear that the American venture capital company Sequoia, with $ 500 million of capital to support crypto startups, has invested in FTX. And, as you know, the funds greatly add legitimacy to the project in the eyes of retail investors, but even this fact is not a guarantee that the infrastructure solution will be able to withstand market fluctuations and poor risk management. Tracked trends from VK: Metaverse, web 3.0, NFT (infrastructure projects, not a series of pictures and memes), blockchains.
“When searching for projects, it is worth paying the attention of investors to the problem: what problem are they solving and whether they solve it, how strong the team is implementing the project, competition and tokenomics. If one of these elements is lost, it will be almost impossible to get support from the fund, especially at the initial stage,” commented the speaker.
About investing in Web3 startups
According to Anna Zakutina, funds prefer to invest in infrastructure projects: exchanges, blockchains, marketplaces, Metaverse, GameFi. Separately, it is worth mentioning investments in DeFi, as this is still a bit of a controversial story: institutional investors cannot support as much as they could, due to the lack of regulation.
“Is it possible to regulate decentralized finance? Decentralization is just a real story about crypto anarchy, not mass adoption. A regulator will come, innovation will take a different path, companies will not see investments that would accelerate the attraction of a wider audience to DeFi,” Anna is sure.
However, DEXs continue to appear, and it is clear from the behavior of some decentralized exchanges and their innovations that they are trying to attract large players to the pools.
On the situation in the grant market
The market has changed, some companies have closed projects, and some have gone bankrupt. This could mean that cryptocurrencies are everything. Fortunately, grants are allocated for the development of the industry from projects that have already managed to gain a foothold in the market and are building infrastructure around themselves.
“They offer grants TON, AAVE, Chainlink, Copmpund, ETH Denver hosts hackathons. TON is open to talented teams at different stages and is ready to support the development of the project in the necessary equivalent. About $250 million has been allocated to support projects built on the TON blockchain. There is also a Tonstarter launchpad that helps with marketing activities and closing rounds for startups,” says Anna.
Web3 Investment Strategies
Haven mentioned how to invest in Web3. Let’s discuss strategies for investing in Web3, including the metaverse or cryptocurrencies in general.
Buy low, sell high strategy
It is important to remember one important thing: buy low and sell high, especially if you are only interested in the short-term value of the project. This is a basic trading principle that can help you make a profit even when the market is in a downturn. By buying assets when they are cheap and selling them when they are expensive, you can stay profitable.
Of course, there is no guarantee that these strategies will work every time. Web3 tokens are volatile and it can be difficult to predict which direction they will take next. However, if you are patient and lucky, you can earn a lot of money by investing in cryptocurrencies.
It is also important to know what you are investing in. There are many cryptocurrencies and projects related to Web3, and each of them has its own unique set of features that make it more or less attractive compared to others. By understanding the goals of Web3 startups, you can make more informed decisions about which ones to invest in, foreck.info analysts emphasized.
Of course, it is also important to remember that the value of any given cryptocurrency is tied to its project to some extent. If a particular Web3 project is gaining momentum compared to others, then it might be a good idea to invest in a native token.
Don’t invest more money than you can afford to lose.
When it comes to trading, there are many different strategies that you can use to make money. However, the most important thing is to always remember to be careful. Make sure you only invest the amount of money you can afford to lose because there is always a risk that you could lose everything.
Maintain a diversified portfolio.
You should never put all your eggs in one basket. This is especially true when it comes to investing in cryptocurrencies. By diversifying your portfolio, you can reduce the risk of losing money if one of your investments fails.
There are many different Web3 tokens out there and it can be difficult to choose which ones to invest in. However, there are some things you can look out for when trying to decide if a particular coin is right for you.
Conclusion
Investing in Web3 can be a good idea. Firstly, the global Web3 market is expected to grow substantially, taking into account the interest of big players. Secondly, Web3 offers a safer and more efficient way to collect and use data, enabling businesses to create new products and services directly delivered to consumers. Thirdly, Web3 is still in its early stages, which presents significant growth potential. Finally, Web3 is seen as the future of the internet.
There are several ways to invest in Web3, including buying shares in Web3-focused technology companies, purchasing Web3 tokens or cryptocurrencies through ICOs and trading platforms, investing in Web3 tools, and investing in non-fungible tokens (NFTs) and the Metaverse. Yet, you should keep in mind the high risks of the industry and do your research before any investments.
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