SCENE's 2023 Story of the Year: Is the Web3 Dream Dead?

Crypto Breaking News

Dec 24

Not so long ago, Web3 was a battle cry.

The term, first coined in 2014 by Ethereum co-founder Gavin Wood to refer to a future, peer-to-peer internet without gatekeepers, gained real vigor during the NFT boom of 2021.

That year, idealistic tech innovators—across art, fashion, journalism, film, hospitality, you name it—adopted Web3 as a coat of arms, one that stood for vanquishing the hyper-centralized powers in control of the global economy, and ushering in a new age of decentralized and democratic prosperity for consumers and creators alike.

By utilizing blockchain technology, these dreamers mused, they could overthrow Hollywood. They could defeat Dolce & Gabbana. They could subdue and push back even the likes of tech giants like Meta. The stakes of this conflict were nothing short of existential: some Web3 industry leaders even likened it to a war against feudal overlords. Web3 startups routinely invoked the rhetoric of struggle and combat—"battle," "revolution"—to underscore this ethos.

But recently, leaders in the Web3 community have begun to openly question whether the revolution has lost its way. 2023, one of crypto's roughest years ever, was undoubtedly full of sacrifices. To some, those may have included Web3's founding principles.

"I think what we've seen in Web3 this year is survival being prioritized over ethos," Dani Loftus, founder of digital fashion platform DRAUP, told Decrypt. "Many [companies] fighting for their lives have compromised the 'WAGMI' mentality for whatever metrics make them 'successful' or 'keep them afloat.' It's likely the compromises many have made to survive are entrenched."

The irony is that, at least on paper, Web3 is doing better than ever. From Disney to MoMA to Mercedes to Gucci to Visa to Starbucks, there's hardly a major Web2 company out there that hasn't made some kind of Web3 play this year, or internally investigated the possibility.

That's a substantial shift from even two years ago. What's more, a majority of these companies don't appear to be one foot out with Web3—many have created years-long roadmaps for their blockchain-backed projects, and established considerable corporate infrastructure to support those endeavors in the long-term.

But while that infusion of support from established companies has bolstered Web3's prospects this year, it has also come at certain ideological costs. Most Web3 projects taken up by major corporations have not, of course, meaningfully redistributed wealth, influence, or opportunity—-as the technology's first proponents once sought.

These projects have instead given birth to new types of customer loyalty programs, exclusive merchandise drops, and product tie-ins. Innovative, surely. But hardly revolutionary in the material sense.

As for Web3-native startups, many appear to have softened their rhetoric when it comes to the great Web2 enemy. When Apple revealed its immersive mixed reality Vision Pro headset in June, open metaverse advocates—a core subset of the Web3 purist crowd—celebrated the news as a major step forward.

These were the same people who, months prior, had declared open war against Meta for trying to dominate the metaverse with corporate imperatives. Meta CEO Mark Zuckerberg, at least, tried to frame his Web3 ambitions with gentle overtures to the open metaverse crowd; Apple's attitude towards Web3 could be described as unfeeling at best, hostile at worst.

So has Web3 dropped its weapons? Has it left the insurgency behind to join the ranks of the status quo?

Nihar Neelakanti, an entrepreneur who co-founded the blockchain-backed carbon emissions startup Ecosapiens, ascribes much of this recent change of tune within Web3 to the brutal shift that occurred in the fundraising landscape over the last year.

"I've been in startups my whole life, and VC prior to this," Neelakanti told Decrypt. "I've never heard an investor ask a seed, Series A, or Series B company to seek profitability. Until now."

"That's not how startups work," he continued. "That's ludicrous to ask of a seed [or] Series A. It's even harder when you're a Web3 company."

Neelakanti says he's encountered a complete exhaustion of patience from VC firms with crypto-related companies following events like the collapse of FTX last November. Investors now want immediate returns on their investments, Neelakanti says—which means Web3 companies no longer have the luxury of pursuing high-minded goals like reshaping consumer habits or educating users on the benefits of decentralization. They need to make money—now.

For most struggling Web3 startups, the most feasible path to black has been selling services to established brands and companies—which, Neelakanti said, have zero interest in revolutionizing anything besides their bottom line, and expressly want nothing to do with terms like "crypto," "NFT," or "metaverse."

"People at these companies are saying [to Web3 startups], 'If I mention the word NFT or Web3, my boss is gonna fucking shoot me,'" Neelakanti said.

That brings things full circle. It's not just that harsh financial realities turned Web3 startups' once-enemies into their best chance at survival. They've also forced these startups to often swallow their ideological principles in the name of living another day.

Emma-Jane MacKinnon-Lee, the founder of digital fashion startup Digitalax, identifies the Web3 ecosystem's current dependence on venture capital as the chief obstacle to the sector realizing its revolutionary potential.

"We can't have any third-party player able to yank us around by controlling the chokepoints," she told Decrypt. "That means making VC obsolete before Web3 is finally viable."

So Web3 now finds itself going through a bit of a coming-of-age transition—from an idealist's adolescence into the tough streets of the real world. Balancing the technology's democratizing potential with tangible profitability was always going to be a high-wire act, but 2023's ruthless economic realities appear to have pushed things to a head sooner than many expected.

Not everyone in the space sees things so decidedly black-and-white, though. J.P. Alanis, an entertainment executive who co-founded StoryCo, a Web3 platform for creating and participating in immersive, film-like experiences, says he never sought to burn down Hollywood.

He does believe, though, that by leveraging Web3 to give undiscovered creators the resources to attract top writers, actors, and producers, he might be able to steadily forge a path to a better and more equitable entertainment industry.

"The reality is that Web3 was never meant to completely replace [existing systems]," Alanis told Decrypt. "It's meant to supplement, complement, and fill gaps in that existing system."

"But addressing some real problems, in our case how superfans engage and interact with content, and who gets to help create that content," he added, "can lead to a big shift."

On the whole, it appears that many Web3 creators no longer crave bloody victory in a multi-front holy war against the likes of Netflix, Apple, and Louis Vuitton.

Maybe that's giving up—or maybe that's just growing up.

Edited by Andrew Hayward