Value Accrual and Business Models in Web 3.0
Having introduced the big ideas behind Web 3.0, I want to dig deeper into the business models that are emerging within this new paradigm, so women are able to take advantage. Before I do though, it’s worth reminding ourselves of Web 3.0’s fundamental aims and how these improve the internet.
Web 3.0 is built on decentralized blockchain networks that do not contain a centralized entity who controls access. Therefore, there is no single party taking profits from the activity that occurs but instead a level playing field for all. In this way, Web 3.0 enables middlemen to be bypassed, so direct connections between consumers and suppliers can be established.
A Word on Tokenomics
Tokenomics, which is the study of token economics within blockchain networks, is a big subject — but it is helpful to understand the basics before investigating Web 3.0 business models.
Tokens were introduced into decentralized blockchain networks to incentivize behaviors that would benefit the network as a whole. In the case of the Bitcoin network, the 21 million bitcoins were to be used as a medium of exchange, with the mining process acting as an incentive to keep the network secure.
In Ethereum, the process of paying to execute smart contracts and confirm transactions is referred to as paying gas fees, which are denominated in the native token Ether.
Business Models in Web 3.0
The main economic difference between Web 3.0 technology and Web 2.0 technology is the accrual of value into tokens rather than equity. In Web 3.0, decentralized blockchain networks have a native token rather than shares, with users accumulating tokens in a variety of ways.
Fees on use
A valuable token will have some utility in the network, such as paying validators for transactions to be confirmed.
Fees may also be levied in relation to the main activity that occurs through any given protocol, such as lending or exchanging of tokens. When this fee is paid to token holders, it can be thought of like the dividend that equity holders receive from a company whose shares they own.
Fees may be distributed to liquidity providers (LPs), who provide their own tokens as collateral to a lending and exchange pool, or to the holders of the protocol’s native token (or a combination of both).
Creating digital assets
The distributed ledger at the heart of a blockchain network records ownership of assets in a secure, immutable and auditable way.
This is one of the benefits that have made non-fungible tokens (NFTs) so popular with creatives today. These unique digital assets, which can be art, music, collectibles or other digital items, are created and recorded on the blockchain so the creator has full control of how they are sold and who receives payment.
In this way, Web 3.0 is introducing a new and empowering business model for creators that stands in stark contrast to the copy and paste model for content that exists in Web 2.0.
Investing and yield generation
As interest in a decentralized blockchain network grows, the value of its native token increases and so does its price. This is why many of the early Web 3.0 business models revolve around trying to pick the winners and invest in a native token early on.
The incentive design in blockchain networks means that Web 3.0 investing can also involve chasing these incentives to generate returns. This is known as yield farming, where investors scope the market for protocols offering rewards, which usually involve providing liquidity and receiving more tokens in return.
DAOs
Decentralized Autonomous Organizations or DAOs are important for Web 3.0 because they are the mechanism by which individual entities coordinate within decentralized networks. In this way, they can be thought of as unique Web 3.0 amalgamations of communities, corporations and cooperatives.
Like decentralized applications, DAOs exist on blockchain networks and are coordinated via smart contracts. They are usually established to achieve an objective, such as funding a project or investing to achieve returns, but can also have a purely social or community-based agenda.
DAOs usually include some sort of online community within a popular messaging platform, such as Telegram or Discord. They also control a communal treasury, with a unique set of governance rules for spending the funds to meet the DAO’s objectives.
As an online community that is focused on helping women to understand decentralized finance, we’re really interested to see how DAOs develop within Web 3.0. If this post has piqued your interest too, we’d love to hear if there are any topics you want to find out more about.