Analysis of the Reasons for Poor Performance of Web3 Ecosystem Projects and Future Development Directions

Recently, the Web3 community has generally felt disappointed with the secondary market performance of Ethereum ecosystem projects. The emergence of this situation is mainly due to the following reasons:

1. Lack of incremental capital inflow

The incremental funds in this round are mainly concentrated in Bitcoin ETFs. As of August 28, the cumulative net inflow of Bitcoin spot ETFs reached 17.85 billion USD, while the Ethereum spot ETF is still in a net outflow state of 475 million USD. This portion of funds is primarily directed towards Bitcoin as a single currency, with almost no spillover effect on other cryptocurrencies.

2. The existing funds lack interest in the Ethereum ecosystem.

The stock funds within cryptocurrency exchanges show a phenomenon of not taking over from each other. The interest in various popular narratives varies between different regions and groups, leading to particularly poor performance of Ethereum ecosystem projects in the secondary market.

3. Overemphasis on infrastructure construction, insufficient application innovation

The current Web3 industry generally focuses on infrastructure development, but there is a lack of innovation at the application level. This phenomenon partly stems from the limitations of value capture in Web3, namely the "fat protocols, thin applications" pattern. Investors tend to prefer investing in underlying public chains and layer two networks rather than application layer projects.

The Future Development Direction of Web3 Applications

Ethereum co-founder Vitalik Buterin proposed two essential characteristics that valuable Web3 applications should possess: ongoing utility and adherence to principles like decentralization. From an investment perspective, two additional characteristics can be added: the ability to generate its own revenue and positive externalities.

1. Decentralized Finance (DeFi)

DeFi is one of the most successful application scenarios in Web3, including lending protocols, decentralized exchanges, derivatives trading, stablecoins, and more. Although some leading DeFi protocols perform well, their token prices have not performed well, primarily due to a lack of effective value capture mechanisms.

2. Prediction Market

Prediction markets are considered the holy grail of cognitive technology, highly aligned with the理念 of Web3. They allow users to predict and bet on future events, providing a decentralized way to acquire knowledge and market information. Recently, with the rise in interest surrounding the U.S. presidential election, a certain prediction market platform has seen a new high in user activity and betting volume.

3. Decentralized Physical Infrastructure Network (DePIN)

DePIN is both an infrastructure-type network and may become a future application carrier. It covers areas such as decentralized communication networks, distributed storage, and decentralized computing power networks. Some projects are developing dedicated mobile phones that could serve as new gateways to the Web3 world. In addition, essential infrastructure for modern society, such as shared transportation networks, may also operate in the form of DePIN, demonstrating its inclusiveness and positive externalities.

Conclusion

The breakthrough for the Web3 ecosystem may lie in the application layer, especially those innovative applications with the potential for large-scale user adoption. These applications need to comply with the fundamental principles of Web3, such as decentralization and permissionless access, while also possessing sustained practicality, self-sustaining capabilities, and positive externalities.