BWEB: There are investments in a better Web3 (BWEB)

Bitwise Investments has its third listed cryptocurrency fund after launching the Bitwise Web3 ETF (BWEB) this week. The purpose of this fund is to track publicly traded companies that would benefit from building Web3. ETFs It currently has AUM of $1.7 million, total assets of 33, and an expense ratio of 0.85%. Before we get into the details of the fund’s holdings, let’s first explain what Web3 is and why many believe it is an improvement over what is currently known as Web2.

Web1 vs Web2 vs Web3

As evidenced by Twitter (TWTR) founder Jack Dorsey’s rather nonchalant request for Web5 a few months ago, there is actually a little bit of what Web3 actually looks like. There is an argument. Despite some infighting from potential innovators, I believe most interpretations of his Web3 center around decentralization as a central theme. To better understand what that means, it’s important to also understand the change of the Internet from Web1 to Web2.

• Web 1: Internet pages before the dot-com bubble. Mostly static, with little user interaction with the web-based application.
• Web 2: The Rise of UGC, or User Generated Content. For example: social media. Users create and interact with content through centralized entities that they do not own or control.
• Web 3: An Internet-based exchange that does not require a centralized entity or walled garden. COMMUNITY OWNERSHIP OF THE PLATFORM OR PROTOCOL.

The term Web3 is credited to Dr. Gavin Wood in 2014. Wood was one of the original co-founders of Ethereum (ETH-USD) and is currently developing Polkadot (DOT-USD). In his Wired interview last November, Wood was asked if Web3 meant the collapse of platform monopolies like his Facebook (META) and his Twitter.

I think it’s a logical improvement. And in the grander scheme of things, I think it’s inevitable.It’s either inevitable or society is declining.

I personally agree with this view and believe that companies like Meta Platforms and Twitter actually have the most to lose if Web3 happens as it is currently supposed to. This is an idea Bitwise seems to understand, judging by the company’s own description of Web3 in his brief prospectus.

“Web3” envisions a future era of internet decentralization, where a small number of companies replace systems where they can wield a great deal of influence over internet users. Web3 refers to the evolution of the Internet’s core architecture that leverages blockchain technology to make the Internet more decentralized, secure and open. By providing all users with the opportunity to own their data and property in the digital world without relying on centralized intermediaries, Web3 promotes data privacy, decentralized ownership, and community consensus ecologically. It provides an internet experience that acts as a key pillar of the system.

With that in mind, let’s see if the fund’s holdings match what Web3 proponents would like to see in theory.

BWEB Top 10 Holdings

The fund’s top 10 stocks include companies related to payments, cryptocurrencies, software, games, VR and social media.

click to enlarge

Source: Bitwise

I’m not really bickering about some of these choices, but I find such large allocations to the Meta Platform a bit baffling. It’s more like VR play than metaverse play. The details of this paper have been covered in detail in previous articles. You can read it here. I think Roblox leans too far toward walled gardens, too. Cloudflare and Equinix are theoretically winners for his Web3 as infrastructure, but with lower valuation grades and higher equity debt for his position. Then there is Twitter.

Twitter is the archetypical child of Web2

How will Twitter navigate the change from Web2 to Web3? Perhaps a better question would be who would win if Twitter changed? To better protect user privacy and data If Twitter’s monetization model needs to be tweaked, it may not be a tailwind for Twitter’s revenue. I think Twitter has a lot of potential and the platform offers a great deal of value to its users, but how the company can derive that value as a business and remain philosophically aligned with the spirit of Web3. will be a very difficult change. Navigate.

The current confusion over Twitter ownership is a direct result of Twitter’s centralized management model. This goes against the spirit of Web3.Elon Musk plans to honor the initial agreement to buy the company for his $44 billion, according to the latest reports, but recently Interaction leak Between Musk and Jack Dorsey, Dorsey seems to think building something new is the right approach.

I believe it should be an open source protocol, funded by a foundation that does not own the protocol and only advances it. A bit like what Signal did. You can’t have an ad model.

This may perfectly explain why Dorsey recently left the company. However, Musk seems to dispute Dorsey’s views.

I think there’s value in both trying to move Twitter in a better direction and doing new decentralized things.

Taken together, I think each of these comments makes a strong case for decentralized platforms over centralized management. If you want to decentralize your social media platform, I think there are better ways. One of them was shared with BlockChain Reaction subscribers in August. Since posting, the idea is now up about 100%.

Overview

If Web3 is the internet revolution, it should come as no surprise that many of today’s internet application giants are decentralized losers rather than winners. From my standpoint, his Web3 bet in 2022 should look a little more like a gold rush. Digging may earn you some personal value, but selling shovels may be the best way to win when everyone wants gold.

This is why I believe betting on the Web3 rails rather than the Web2 platform will yield better returns. These Web2 platforms must successfully transition to Web3 and maintain an economic model that benefits investors. Basically, the economics of creating a successful Web3 company for him is very difficult. This was only recently rolled out with the closure of Mint Songs, the music NFT company.one of the co-founders pointed out later The economic model was not sustainable.

I absolutely believe Web3 has a future. I think it makes more sense to bet on networks where Web3 protocols such as Ethereum, Solana (SOL-USD) and Polygon (MATIC-USD) will be developed. If Web3 becomes a legitimate reality, the native assets of Network Rails could be far superior to the centralized platforms that have to adapt or die as potential winners for Web3. The Bitwise Web3 ETF will probably have some He Web3 winners, but investors would do better to make more selective bets on their own.