The key to investing in web3; Super apps from East to West; 7 lessons from WeChat’s rapid growth; Embedded finance as a bridge;
Perspective for today:
- The key to investing in web3 and how it’s different from web2;
- Super apps from East to West;
- 10 Predictions for Web3 and the Cryptoeconomy for 2022 by Coinbase;
- Embedded finance as a bridge to build super apps;
- Embedded finance for SMEs;
- 7 lessons from WeChat’s rapid growth;
- Major coins in the top 10 are starting 2022 in the red.
- The UK’s tense relationship with crypto.
The key to investing in web3 and how it’s different from web2.
Nicky Montana created a hypothetical simulation of investing $1,000 in 19 tokens, over different years a good read by the way link in the comments.
The most interesting part of the article for me was the explanation of the difference between investing in web3 and web2.
Tokens are the key difference between investing in web2 and web3. Understanding why will help to inform where you should look to invest.
In order to grasp the significance of tokens, it’s vitally important to know the difference between web2 (the internet today) and web3 (blockchain), and why it matters to you as an investor.
In both web2 and web3, there are two important layers:
1. Underlying protocols that connect the internet and its data
2. Applications that are built on top of this connectivity
Web2
The investors with the best returns invested in the application layer. Companies like Google, Facebook, and Airbnb built applications on top of the underlying protocol (TCP/IP) resulting in some of the largest companies ever created.
Web3
With Web3, however, the investors with the best returns will come from investing in the underlying protocols.
The reason is that tokens give an economic incentive that didn’t exist in web2.
By offering tokens, it creates a powerful incentive for investors and entrepreneurs to:
1. Choose to build their application on the eth (rather than another blockchain)
2. Continue to improve the functionality, scale, usability of eth
3. Continue to buy and hold more eth
All of this creates even more speculation and a self-reinforcing flywheel that continually compounds, driving more value into the chain.
So as an investor, it’s extremely important to understand this aspect of web3 — The applications built on the underlying protocols will never be more valuable than the protocols themselves (Eth, Solana, etc).
Admittedly, this is a bit of a hot take ^ and one that can prove wrong in the future. But being that it’s so early in web3, the odds of a single application out-growing the market cap of an Eth or Solana is hard to imagine.
For example, as more valuable applications are built on top of Eth, the value of Eth itself also grows. Further increasing the number of people who buy, speculate, and hold Eth, continually driving the price and market cap higher and higher.
I hope this was helpful but never forget to do your own research.
What other difference between investing in web2 and web3 would you add?
How can investors get more out of web3?
Super apps from East to West.
There are not many ecosystems combined with the super app model in the world. Existing ones are mainly Asian projects: Jio in India, Rakuten in Japan, Kaspi.kz in Kazakhstan and, of course, the Chinese giants Alibaba Group and Tencent.
It is no coincidence that Asia became the home of super apps: the digital ecosystem is an extremely successful model for a closed market, where there are no equal opportunities for players. It is profitable for regulators to keep large amounts of user data in one place, so super apps are provided with great financial opportunities and legislative protection — and in exchange the state uses information about their customers. For example, in China, information about transactions made using Alipay and WeChat is transferred to the social rating system of citizens.
The western market is much more competitive, so it is quite difficult to occupy more than 5% in almost any segment there. Moreover, Western users are very conservative and are not ready for a quick change of the usual scattered products to unified platforms — that is why only super apps with a limited set of functions have gained popularity in Europe and the USA. First of all, this is Uber, which combines taxi and delivery services.
In Russia, ecosystems are being developed for a long time: the largest are Yandex, Sberbank and Tinkoff . But they have not yet turned into full-fledged super apps. Yes, Yandex made an attempt to create its own analogue of Uber called Yandex.Go — but most of the corporation’s services still function as separate products: for example, the YooMoney payment instrument, the Yandex.Realty estate aggregator, the Yandex.Market marketplace, the Yandex.Praktikum educational project, and others.
At his big presentation in 2020, Sber announced the launch of many new digital services — such as SberSvuk, SberMarket and the Salyut family of virtual assistants — but to use each of them, the user needs to download a separate application.
In Russia, banks or IT corporations most often become “donors” for ecosystems. But in theory, all large services have a chance to grow into super apps e.g. Facebook, Uber, Amazon. These are organizations that are united by a large customer base, frequent user contact, and a huge array of customer data — the three pillars on which any ecosystem is built.
To compete with new players launching their payment instruments — both ecosystems and fintech projects — banks will have to develop new digital services.
10 Predictions for Web3 and the Cryptoeconomy for 2022 by Surojit Chatterjee CPO of Coinbase.
1. Eth scalability will improve, but newer L1 chains will see substantial growth — As we welcome the next hundred million users to crypto and Web3, scalability challenges for Eth are likely to grow. I am optimistic about improvements in Eth scalability with the emergence of Eth2 and many L2 rollups. Traction of Solana, Avalanche and other L1 chains shows that we’ll live in a multi-chain world in the future.
2. There will be significant usability improvements in L1-L2 bridges — As more L1 networks gain traction and L2s become bigger, our industry will desperately seek improvements in speed and usability of cross-L1 and L1-L2 bridges. We’re likely to see interesting developments in usability of bridges in the coming year.
3. Zero knowledge proof technology will get increased traction — 2021 saw protocols like ZkSync and Starknet beginning to get traction. As L1 chains get clogged with increased usage, ZK-rollup technology will attract both investor and user attention.
4. Regulated Defi and emergence of on-chain KYC attestation — Many Defi protocols will embrace regulation and will create separate KYC user pools. Decentralized identity and on-chain KYC attestation services will play key roles in connecting users’ real identity with Defi wallet endpoints.
5. Institutions will play a much bigger role in Defi participation — Institutions are increasingly interested in participating in Defi. For starters, institutions are attracted to higher than average interest-based returns compared to traditional financial products.
6. Defi insurance will emerge — As Defi proliferates, it also becomes the target of security hacks.
7. NFT Based Communities will give material competition to Web 2.0 social networks — NFTs will continue to expand in how they are perceived. We’ll see creator tokens or fan tokens take more of a first class seat.
8. Brands will start actively participating in the metaverse and NFTs — Many brands are realizing that NFTs are great vehicles for brand marketing and establishing brand loyalty.
9. Web2 companies will wake up and will try to get into Web3 — We’re already seeing this with Facebook trying to recast itself as a Web3 company. We’re likely to see other big Web2 companies dipping their toes into Web3 and metaverse in 2022. However, many of them are likely to create centralized and closed network versions of the metaverse.
10. Time for DAO 2.0 — We’ll see DAOs become more mature and mainstream. More people will join DAOs, prompting a change in definition of employment — never receiving a formal offer letter, accepting tokens instead of or along with fixed salaries, and working in multiple DAO projects at the same time.
I hope this with your analysis of web3 and crypto in 2022.
What are your predictions for web3 and crypto in 2022?
7 lessons from WeChat’s rapid growth.
WeChat dominates the Chinese mobile market with 889 million monthly active users. The WeChat platform has completely evolved the way Chinese people communicate and socialize online, and it has also changed the way they pay each other and pay for their groceries. WeChat is no longer just an app.
And while WeChat’s blazing success has been concentrated in China, everyone in the Western world has experienced WeChat’s work, as the service has inspired a new category of “messaging as a platform.”
WeChat drives its 889 Million monthly active users to use the app an average of 50+ minutes, and 9 to 11 separate times, per day2. To put that in context, it is the same as the “combined time” users spend across a portfolio of Facebook apps, including Instagram, Facebook and Facebook messenger, on a daily basis.
Lesson 1: Build Your Own Competition
Tencent Started WeChat (mobile-first messenger) as a side project, and it ended up reinventing messaging in China.
Lesson 2: Design For Groups (“Group Effect”)
An individual user’s behavior can be quite distinct from how they behave when in a group. To identify these group-effect opportunities, WeChat closely observed how users behaved among groups of friends and strangers in everyday life. WeChat did not lean on more traditional forms of user research, such as surveys, interviews or following competition.
Lesson 3: Extend Features from Users’ Inner Desires
WeChat paid attention to the motivation behind communication nuances and cultural behaviors to give users more than they could ever think to ask for in a usability study. Allen Zhang (Founder of WeChat) was passionate about keying into the inner desires behind an exhibited behavior, which often led to features that fit naturally into users’ worlds.
Lesson 4: Big Ideas Come From Solving Your Own Problems
Y Combinator has long advised founders to be an avid user of the product and solve their own problems. While WeChat was sitting comfortably at the 300M MAU mark, a simple feature to help their own management team give out Red Packets after Chinese New Year would help them nearly double.
Lesson 5: Monetize Subtly
Monetization and User Growth are not mutually exclusive. WeChat has always been ready for monetization and even uses it as a lever to improve the overall product experience.
Lesson 6: Measure What You Value, Not What You’re Supposed to
WeChat defies the popular belief that growth is all about user growth. Instead they think about growth as increasing value (e.g., the number of tasks WeChat can do in the daily lives of users).
Lesson 7: Don’t Play Favorites With Features
One of WeChat’s core product tenets is it is a “tool” holding up utility-oriented qualities (highly functional, quick and easy to use) as vital to the product experience.
Will embedded finance be a bridge to build super apps?
As embedded finance has grown into a global $43bn industry, it’s the fintechs and tech startups, not the banks, that have led the charge.
In recent years, lines have already become blurred between the worlds of tech-focused business and finance. Global tech giants from Apple to Amazon and Uber have converted millions of their existing clients to their wallets and payment apps.
Fintechs including Europe’s Klarna are becoming household names with embedded finance features like buy now, pay later that sit on top of practically any e-commerce website and shake up the way loans are traditionally awarded.
“Payments aside, there’s still a boundary today between what you do on your banking app and the rest of your online presence, but that’s going to change drastically over the next few years,” says Alan Vaksman, managing partner and co-founder of VC firm Digital Horizon VC.
For consumers, the most notable development so far has been the integration of new payment options into online shopping. But the expansion of embedded finance is leading to bigger, deeper transformations.
In the near future, it’s likely to become standard for customers who are buying a fridge online to be offered a loan to cover the cost, insurance for the product, and maybe even some form of blockchain integration to secure the entire process.
Startups including Toqio and FintechOS in the UK, Banxware and Afilio in Germany, and Younited Credit in France are emerging as the next wave of embedded finance flag bearers. All have closed fundraisings in 2021, by investors including Goldman Sachs, Commerzbank AG, The World Bank and some of Europe’s leading VCs.
But don’t discount the role of banks, which are also starting to make moves to compete with, acquire or partner with the fintechs that are disrupting this sector.
London-based fintech 10x Future Technologies raised $187m in June to expand its offering, helping established banks build next-generation services and tools to help legacy systems work more efficiently. Its founder Antony Jenkins CBE is the ex-chief executive of Barclays, and 10x is reportedly building services for Westpac and Nationwide.
In Spain, BBVA is one bank embracing the potential embedded finance offers. It has developed its own BaaS (banking-as-a-service) offering, and announced in 2020 that it was working with Google Pay in the US to offer digital bank accounts to interested customers.
Carmela Gómez Castelao, head of open banking at BBVA, says such partnerships are becoming more common for banks. “I think every big bank now has a [non-bank] partner,” she says.
What are you expecting from embedded finance in 2022?
Major coins in the top 10 are starting 2022 in the red.
Bitcoin has fallen more than 6% over the past seven days, and is down more than 1% in the first day and a half of 2022, according to CoinMarketCap. The largest cryptocurrency by market capitalization is hovering around $47,000 at the time of writing.
But , at this time last year, Bitcoin was at $32,780. Bitcoin hit a festive high two days after Christmas, when it soared to its highest price in three weeks of $52,050. Ethereum experienced a similar trajectory, but failed to clear $4,120. In the days since then, BTC and ETH have both struggled, both down nearly 7% in seven days.
But Ethereum is on the up and up in 2022, up 1.5% in the past 24 hours while BTC is down.
The leading altcoins have also fallen hard over the past seven days: Solana (SOL) and Polygon (MATIC) are both down more than 10%, while Terra (LUNA) is down 9%. The two top meme coins, DOGE and SHIB, are down around 9 and 13%, respectively.
So what happened? Considering all of them experienced significant growth at the end of 2021, particularly Terra and Polygon in December, a price correction was due.
Despite the pullback, there was positive news this week for a couple of the former high-fliers. Polygon developers quietly patched up the network after white hat-hackers noticed an exploit. The fix didn’t quite come in time: one hacker still made off with 800,000 MATIC tokens, or $2 million USD.
And on New Year’s Eve, Shiba Inu’s developers announced that they have created the first iteration of DoggyDAO, a decentralized autonomous organization that hands control of the network’s ShibaSwap DEX to community members through BONE governance tokens.
Altogether it’s been a slow start to the year in terms of prices, but with growing institutional adoption of crypto across the board, we expect 2022 to be just as explosive as 2021. The question is whether it will be ETH’s year, or another doggy coin hype cycle, or more surging for Solana, Avalanche, and other smart contract blockchains, or something else entirely.
Don’t listen to anyone who claims to know what will happen in crypto markets for sure. Don’t forget to do your own research.
Embedded finance for SMEs;
Let’s continue our conversation on embedded finance and today’s focus is on embedded finance services for SMEs.
Embedded finance is about placing banking services in the day-to-day flow of customers’ lives and work. Some of the world’s most powerful digital platforms are using embedded finance to target small and medium enterprise (SME) banking for growth.
New Accenture research which included approximately 2,500 SMEs in 10 markets confirms that these platform players have enormous customer reach today and that SMEs are receptive to embedded finance.
An associated Accenture model forecasts a revenue uplift of up to $92 billion from embedded finance by 2025. If banks do nothing, up to $32 billion is the estimated traditional SME banking revenue at stake that could be shifted to embedded finance.
Embedded finance is already bringing significant disruption to the consumer market. Offerings such as platform-branded cards like Apple Card, and ‘buy now, pay later’ (BNPL) services from Klarna, Affirm and Afterpay, have changed the way millions of consumers think about payments and credit.
The relationship between SMEs and commercial banks in most markets satisfies neither side; businesses and incumbent banks alike are eager to find better ways of doing things.
From the perspective of incumbent banks, SMEs are a difficult segment to serve efficiently and profitably. An Accenture analysis shows that only 30% of large banks’ commercial units are achieving sustainable positive returns. The SME segment, specifically, underperforms with regard to almost all profitability drivers.
For the customer perspective, many SME’s are dissatisfied with or disengaged in their relationship with their bank. SMEs across the world consistently give their banks low ratings for quality, speed and fee transparency.
Yet despite the influx of neobanks into most markets worldwide — more than 25 challenger banks focused on SMEs have launched in the US alone over the past five years — these digital-first or digital-only players have struggled to gain traction. For example, none has yet managed to seize as much as 1% market share in the US SME market.
So far, inertia has won out — few challenger banks have come to market with truly differentiated propositions that incentivize customers to switch. What’s more, incumbents have managed to enhance their offerings and digital experiences to compete effectively with the innovations introduced by their digital rivals.
The UK’s tense relationship with crypto.
Members of the British Parliament and crypto critics are lobbying the government to crack down on the growing crypto industry.
“It is the Wild West, this grey area between highly leveraged financial investments on the one hand and these products which could quite easily and sensibly be considered gambling,” Conservative MP Richard Holden told iNews.
Matt Zarb-Cousin, a former aide to Jeremy Corbyn, a former leader of the Labour Party, took specific aim at soccer clubs’ growing interest in fan tokens.
Fan tokens are essentially cryptocurrencies that are tied to a soccer club. Some of the biggest soccer clubs in the world have spent over $350 million on fan tokens already, but they have proven to be controversial.
Over the last 12 months, the UK has broadly met the crypto industry with skepticism.
In January 2021, the Financial Conduct Authority (FCA) published five concerns about the crypto industry, including a perceived lack of consumer protection and misleading advertising.
The regulator has also cracked down on Binance, one of the largest and most well-known crypto exchanges around. In the summer of 2021, the FCA told Decrypt it had a “huge issue” with Binance’s lack of a headquarters.
In September, the FCA doubled down and said Binance was “not capable” of being regulated after a Binance UK entity failed to provide even basic information to the regulator
Binance has since said it is trying to patch things up with the FCA, but there is no evidence to suggest their efforts have worked.
When it comes to misleading adverts, the FCA is not the only authority that’s worried about crypto.
The Advertising Standards Authority (ASA) has spent the last 12 months going after Coinbase, Papa Johns, eToro, and several crypto companies for their crypto advertising strategies.
“We see this as an absolutely crucial and priority area for us. Where we do find problems, we will crack down hard and fast,” Miles Lockwood, director of complaints and investigations at the ASA, said last summer.
Could 2022 be one of the years we see tighter regulation on crypto?
