Future of layer-1 protocols: The tectonic shifts
Web3 has become an abused industry term over the past two years. Many centralized players classified themselves as Web3 and rode the euphoria and narrative around the buzzword. 2021 saw an unprecedented change with macroeconomic headwinds, geopolitical risks, hacks on DeFi, the blow-up of Terra and one of the biggest frauds committed by FTX — all creating headwinds for price action and beginning the great cleansing event for the industry loosely called Web3.
Based on many conversations with enterprises, developers, venture capitalists and existing ecosystem players, a few tectonic shifts are underway. Web3 is being altered at a fundamental level and the next bull run could be poised to have a different signature.
Here are points to consider. These are all based on data, facts, anecdotes and my own analysis. While these may not be set in stone, I still believe they are directionally correct.
Liquidity and risk appetite have boundaries. Equity markets across the world have a market cap of approximately $100 trillion spread across around 58,000 companies. The cryptocurrency or token economy has a market cap of only approximately $800 billion at the time of writing, spread across approximately 22,000 tokens — a significant portion of that total market cap is Bitcoin. The imbalance is clear. Markets are on a correction trajectory with many of the altcoins outside the top 20 in market cap — unfortunately, likely to suffer or not maintain their market position.
A large part of the bull run was fueled by printed money finding its way into tokens via venture capitalists (VCs). Multiple VCs who invested in LUNA, FTX, etc., have gone through their maturity curve and are not likely to embark on these risky bets without adequate due
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