What is Web 3.0?
How to invest in Web3 and what are Web3 investment opportunities? To begin with, let's define what Web3 means in general. The term Web 3.0 appeared long before 2014, when Gavin Wood, Ethereum co-founder, endowed it with the precise meaning by which we know Web3 today.
So, Web3 is an Internet space where, thanks to blockchain technology, users themselves remain the proprietors of user data, content and any digital assets, and there is no longer a need to transfer this information to centralized platforms for storage, demonstration, monetization, etc.
Users can share and monetize their property at will and without intermediaries, as opposed to Web2, where all data must be transferred to a centralized platform, e.g., Google or Facebook. Platforms could do anything with them, including selling, and receive huge commissions for any monetization of the rights of monopolies. Web3 is capable of radically changing the situation by leaving the producer and the consumer face to face with each other.
What is the Web3 Ecosystem?
When the Internet first emerged in the 90s, it was a repository of static content - news pages, directories, ads, etc. This Internet is commonly called Web1, because it could only be READ.
The beginning of the new millennium was marked by the dotcom boom (and its subsequent collapse), but it produced the Web2 world - an interactive Internet with opportunities for communication and socialization: personal websites and social networks emerged, and with them - the power of monopolies like Google, Facebook and Apple. These monopolies began to earn on their users and even more - on developers, charging commissions for their applications. The Web2 era arrived, allowing to READ and WRITE online, but everything you read and wrote belonged to a third party in its entirety.
And here we are, on the threshold of Web3, where, strangely enough, users are endowed with the OWNERSHIP RIGHT and have the technical capabilities to dispose of property at their discretion and not depend on monopolies. This is just the beginning of a difficult path, where in a decentralized Internet everyone will be able to choose who, what, how and on what terms to offer, share their data and monetize them, vote with governance tokens, that is, READ, WRITE and OWN!
That is why the question of How to invest in web3 crypto projects? is so popular on the Internet today, because where property appears, investors also appear!
Web3 terms and layers
The Web transformation process has already been launched and cannot be stopped, but Web3 is still at an early stage of development and exists as a concept, rather than a real ecosystem. That is why it does not even have a unified terminology, and different teams offer their own views on the Web3 stack. Coinbase approached the issue of Web3 layers classification most thoroughly, so it would be reasonable to take their vision as the foundation.
Let’s say, by investing in web3, the user enters Web3 through the MetaMask browser wallet (Access Layer 4) in order to take a look into the Decentraland metaverse (Use Case Layer 3), as well as buy NFT on OpenSea (Use Case Layer 3). As an information source for making investment decisions, the user utilizes the Chainalysis analytical service (Infrastructure Layer 2), simultaneously incorporating the Aave (Infrastructure Layer 2) lending protocol to borrow digital assets (e.g., USDC for ETH) and to exchange them for the desired tokens using the Curve decentralized exchange (Infrastructure Layer 2) in the Ethereum blockchain (Protocol Layer 1).
What Coinbase calls the Protocol Layer in 101 Blockchains comprises three layers - Protocol Layer, Network Layer and Infrastructure Layer.
Here, the Protocol Layer by Coinbase is fairly divided into first - and second-level protocols (e.g., Polygon and Optimism on top of Ethereum), bearers of value are followed by cryptocurrencies, stablecoins and tokenized assets, above it are oracles - services for interacting with the real world, including centralized exchanges like Coinbase, then come DeFi applications and, on top, wallets for interacting with them.
Let's take a closer look at the Web3 layers by Coinbase, which the user goes through in the process of investing in Web3.
Let's start with the top layer, because in order to make use of Web3 capabilities, first of all you need a wallet and a certain amount of coins in it. You may transfer coins from a centralized cryptocurrency exchange (CEX), which may be likened to a kind of entrance to the near-Earth decentralization (Web3) orbit from the centralized alma mater (Web2).
Despite the fact that CEX is directly related to cryptocurrencies, tokens and blockchain, they are still more Web2 than Web3, because you trust your funds to a third party, which is akin to sending user data to Facebook or Google.
Now that you have coins in your wallet, you are no longer dependent on monopolies, and all your data, content and assets belong only to you. Welcome to Web3!
So, let’s say, you have created an account in the MetaMask wallet to start buying the best Web3 coins to invest in. At this level you can use the DappRadar service aggregator to evaluate all the numerous opportunities that open up, and take a closer look at Twitter and Reddit, which are taking active steps to integrate into Web3 as quickly as possible and use cryptocurrencies and NFT as a means of socialization for the new generation.
Services such as DeBank - the platform for DeFi portfolio tracking - are also available here. When you have many different tokens, you may want to use some modern means of analyzing the so-called tokenmetrics, and use your wallet to easily connect to them.
Use Case Layer
The next layer contains interfaces for deeper interaction with Web3.
For instance, by connecting a wallet to Decentraland while in possession of a sufficient number of MANA tokens supported in this metaverse, you can interact with other users, and the more the metaverse develops, the more diverse interactions may be available. One of the groundbreaking related events was the first virtual wedding, which was celebrated in the Decentraland metaverse in February 2022.
Also at this level, you can go to the OpenSea marketplace to look for some NFTs, and wonder why you aren’t creating your own NFT collection and publishing it there?
Finally, let's descend even deeper to the Infrastructure Layer or the “Category Primitives,” which means “Interoperable building blocks that are highly reliable at doing one specific task; can be combined to create applications” by Coinbase.
At this layer, there are projects that can provide you with all imaginable amenities when working in Web3, in particular, the ability to conduct operations with your digital assets, i.e., to exchange them on decentralized exchanges such as Uniswap or Curve. In addition, you can use lending protocols such as Aave or Compound to borrow or lend assets, send them to the Lido platform, insure risks at Risk Harbor, etc.
You may also be inspired by using a decentralized Filecoin file storage, analytics from Chainalysis or Dune Analytics, or the Web3 XMTP messenger instead of WhatsApp, and even audit services in case you are already developing your own smart contract...
All these are important building blocks for solving specific tasks on Web3, or, in other words, a supply overhang from developers who create demand, anticipating the customers' desires.
Finally, let’s move on to the lowest layer - the Protocol Layer:
The Protocol Layer refers to the blockchains proper, which allow everything else to exist. The Bitcoin blockchain is a kind of breakthrough and a harbinger of a wide range of other emerging protocols, each of which contains its own idea, and attempts to eliminate the shortcomings of its predecessors, while revealing new weaknesses and limitations.
In more detail, Coinbase reveals this layer, addressing developers, rather than users. The figure below shows that on top of base Level 1, where the blockchains Bitcoin, Ethereum, Solana, Cardano, Polkadot, BSC, Avalanche, Near, Cosmos, Algorand, etc., are located, Level 2 protocols have been deployed, such as Lightning Network (on top of Bitcoin), Optimism, Arbitrum, Polygon (on top of Ethereum), designed to reduce fees and increase the so-called scalability of the basic blockchain, throughput, and transaction speed.
There are also internetwork solutions - bridges required for communication between blockchains and transfer of assets from one blockchain to another.
Level 2 protocols differ in the nuances of technical implementation and include the so-called sidechains (side chains that do not inherit the security of the main network) and rollups. Both are deployed on top of the main blockchain, and can form the basis for new solutions compatible with the basic network (mainly for Ethereum).
Sidechains are simpler, cheaper and faster solutions that cannot harm the main blockchain, in other words, if something went wrong in the sidechain, it remains the problem of the sidechain and all the applications deployed on top of it, rather than of the basic blockchain. Rollups use a different cryptographic protocol and rely on the security of the underlying network, therefore they are considered more secure and promising than sidechains, but have lower liquidity and higher fees.
Take a closer look at this set of solutions for developers, imagine how many more Web3 companies to invest in will emerge, and feel the potential of Web3 development for the coming years and decades!
How to invest in Web3 (step-by-step guide)
When wondering Where to invest in Web3?, the main thing to remember is that in addition to traditional financial risks, there are regulatory risks. Decentralized finance is not actually regulated in any way and causes incredible irritation to the supervisory authorities, especially the SEC, whose periodic attacks on a particular project increase the degree of fear, but have failed to change anything in essence so far.
If you have achieved some success in such quiet markets as the stock market, commodities, and especially bonds, and you want more dynamics - welcome to the Web3 world! You will find the same charts, indicators, patterns and everything else you’ve seen in classic assets, but in a tighter time grid.
Look at the two charts below and you will find that it took gold 25 years to do what Ethereum managed in three years (a 20-fold growth cycle). Therefore, be prepared: the weekly charts in your analysis will be replaced by daily, daily - 4-hour, and hourly - 5-minute ones.
Here, life flows 8-10 times faster, not to mention the periodic tsunamis, when time accelerates to the extent that exchanges crash.
So, in order to invest in Web3, you need a MetaMask-type cryptocurrency wallet (TokenPocket, BitKeep, etc.), as well as some experience working on any centralized cryptocurrency exchange, which will become a kind of transitional stage between classical markets (including Web2) and the decentralized Web3 world with a digital asset market.
1. Top up your wallet with the cryptocurrency of the blockchain in which you intend to take your first steps, i.e., Ethereum. You need the corresponding Ether (ETH) cryptocurrency in order to pay commissions on transactions. No matter which blockchain you work in, no matter what tokens you buy, you need to have a few respective coins in each of them to pay for “gas”.
2. After the Ether cryptocurrency appears in your wallet, you can connect to any sites and applications in the Ethereum blockchain that have a “Connect wallet” button. The most logical place to start is to connect to a decentralized exchange (DEX) to buy tokens. Type the name Uniswap DApp (decentralized application) in the MetaMask browser and proceed to the exchange.
In the Swap tab you can select the necessary tokens using the “Select token” drop-downs, e.g., the tokenized USDT dollar/ETH pair, and conduct the first transaction to exchange one asset for another.
Depending on your goals, you can exchange any tokens on decentralized exchanges, earn on their price movements and connect to any decentralized services by specifying them in the address bar of your wallet's browser.
Similarly, if you work on a computer and Metamask is installed on it as a Google extension, you can connect it to the sites of decentralized services, performing all the same operations that are available from a smartphone.
3. Now you can navigate through all Web3 layers: perform all kinds of operations with tokens, buy and sell tokens, including NFTs, immerse yourself in the virtual reality of metaverses, connect to decentralized content and analytics services, etc. The further Web3 develops, the more opportunities you will have to integrate with it.
Best ways to invest in Web3
As in any other market, the only sure way to invest in Web3, as banal as it may sound, is to limit the risks that are off the charts here. You can study tons of relevant literature, but only practice, mistakes and small steps forward will allow you to avoid major disappointments on the way to mastering the mechanics of the Web3 profit-making processes and satisfaction from the work done.
As the rightful owner of your assets who does not depend on any regulators, you may believe that this is an ideal world, but it’s actually a jungle where the strongest and the fittest survive. In addition to truly innovative projects that propel the industry forward, there is a huge amount of various garbage and all kinds of scams that can deprive you of all your earnings in a matter of seconds with or without intent. A wrong tap of a button can send your money to a non-existent address, where it will end its existence. The most important thing you need to know is that in decentralized Web3 networks everything happens IRREVOCABLY.
In addition to the fact that nothing can be undone, there is also no one to complain to, no centralized public authorities or regulatory organizations. All you can do is contact the project’s technical support - but don’t overestimate its ability to empathize.
So, when entering the roads of the Web3 Wild West, be aware of the environment and don’t take any sudden steps if something seems to be going wrong. How fast you can draw your revolver and how tough you look mean nothing here.
DeFi (Decentralized Finance) is an integral part of Web3. In the first part of the article, we have already touched on DeFi architecture and the services that it provides, talking about the Web3 architecture and layers. More generally, you can invest in the DeFi applications development, but in the usual sense, investing in DeFi means buying DeFi tokens and using DeFi services.
By connecting your cryptocurrency wallet to decentralized exchanges and other DeFi services, you can exchange one asset for another, borrow and lend funds using lending protocols, stake tokens or send them to liquidity pools, receiving a certain percentage of income, etc.
The main hopes of novice investors in DeFi are usually associated with the ability of some tokens to haul in returns with several zeros. However, the number of tokens is so huge that counting on luck alone is not the best strategy, just as with the American stock market, where there are a great many stocks. Move around the DeFi world in small steps and limit your risks.
Buy Web3 tokens
Tokens differ from cryptocurrencies in that they don’t have their own blockchain. For instance, in the Ethereum blockchain, the cryptocurrency is Ether, and everything else is tokens. In the BSC blockchain (Binance Smart Chain), BNB is the cryptocurrency, and everything else is tokens. At the same time, cryptocurrencies can also exist in the form of tokens in other blockchains. For example, BTCB (Binance Bitcoin) is a tokenized BTC on the BSC network. Such tokens are secured with basic cryptocurrencies in a ratio of 1:1, and their prices may differ slightly from the base rate.
There are tens of thousands of tokens in Web3 - from highly respected to outright slag. Each token has its own unique smart contract address. Some tokens do not even have their own website, however, they are quite actively traded on decentralized exchanges. However, it is worth starting with more or less verified tokens that are fully integrated into all the usual means of communication, i.e., with a website, a large audience in Twitter and Telegram chats, present in information and analytical services, etc.
When buying a token, you should study the website of its project and its Whitepaper - the main document describing its tokenomics, check the token address from the site with the token address in your wallet and make sure that this is not a fraudulent token clone. In general, the commission for token purchase on decentralized exchanges is a fraction of a percent, but some projects charge an additional commission for each transaction “for project development,” which can be 10% or more. As a rule, such nuances are disclosed either in the Whitepaper, or on one of the project's website pages.
Speaking of stablecoins, these are tokens pegged to the value of real-world assets. The most famous stablecoin is Tether or the tokenized USDT dollar (1 USDT = $1), issued in almost all major blockchains. Stablecoins play an extremely important role in the volatile cryptocurrency market and serve as the main conduits for avoiding risks. Nevertheless, the example of the aforementioned UST, which has lost its peg to the dollar and is worth $0.23, rather than $1, on May 11, 2022, demonstrates that stablecoins have their own risks, which should also be kept in mind when compiling an investment Web3 portfolio.
Staking is one of the ways to invest in Web3, which is the equivalent of a bank deposit, only the deposit is made in a Web3 project, rather than a bank. In general, cryptocurrency staking is the equivalent of crypto mining. While the success of Bitcoin mining strongly depends on the amount of mining power, i.e., mining hardware, in staking (e.g., in Ether mining) - it is contingent on the amount of staked funds. Whoever invested more is more likely to obtain a reward.
Token staking in DeFi is the investment of tokens in a specific DeFi project. Token staking (and not cryptocurrencies) is the blocking of tokens in any project, as a result of which the project receives funding and opportunities to develop further, and the ones who staked tokens - get some interest income.
The easiest way to invest in staking is to use a so-called staking provider platform, where all the staking options, analytics and statistics are collected. Your funds are transferred to a large pool in which all the rewards are paid out in proportion to the invested share minus the pool commission (which is also similar to mining pools).
You can use staking services on specialized platforms, such as Midas or Everstake, in certain cryptocurrency wallets, e.g., Trust Wallet or Atomic Wallet, on centralized exchanges, e.g., Coinbase or Binance, and on other platforms that attract user funds in one way or another.
There is also so-called liquid staking, when a derivative token is issued against the collateral of a blocked asset, which you can use for future operations, receiving income in addition to income from base token staking. The largest liquid staking platform is Lido, and the derivative token stETH (issued on the security of ETH in the ratio of 1:1) is in the Top-20 with a market cap of over $8 billion as of February 2023.
The hype around NFT came about in 2020, nevertheless, the Non-Fungible Tokens phenomenon still exists and has good prospects, despite the X-fold market collapse. In and of itself, the idea of creating unique tokens is also a Web3 product. Each NFT has its price, since a digital cast of any unique object stored in the blockchain is a perpetuated unique event protected by cryptographic methods, i.e., much better protected than the tokenization object itself, whether it is a painting, a photo or anything else.
As if to confirm this, in 2021, Banksy's painting “Morons” (with the inscription "I can't believe you morons actually buy this shit"), ridiculing collectors who buy paintings at auctions that are not worth it for fabulous money, was tokenized (released as NFT), and the original canvas itself was burned. As a result of this public performance, the unique digital impression survived the underlying asset and became reliable proof of its existence in the past, since it is a record in the blockchain, which the extinct dodo bird would envy.
From this point of view, the prospects of NFT lie largely in the legal plane, i.e., as digital copies of important documents, which, however, does not prevent you from creating various collections for entertainment purposes and selling them to collectors for the same insane money..
As with any ordinary token, in order to own NFTs, you will need a regular cryptocurrency wallet of the MetaMask type. As for creating, buying or selling NFTs, the most convenient places for this are marketplaces like OpenSea, Nifty Gateway or Rarible, where in addition to creating token tools, a wide range of NFTs in the field of art, music, video, multimedia, etc, is presented for collecting.
Loans in Web3 secured by digital assets are very popular. Lending protocols allow you to borrow and lend assets on the same platform. In fact, this is a direct analogy with banks that both attract user funds and issue loans. The most famous lending sites are Aave and Compound.
In addition to specialized protocols, this service is available on some exchanges, e.g. Binance. You can get the assets you need without selling the ones you already have for the sake of it. Let's say you have ETH, but you temporarily need BTC. You don't, however, want to sell ETH for BTC because you expect strong growth from Ether. It's simple - you connect to the service and obtain Bitcoins secured by Ether. After those Bitcoins have done their job, you return them to the platform and get back your ETH by paying a commission.
Not only can you take out loans, you can also lend, i.e., earn interest on deposits. Sites like Crypto.com or BlockFi provide user-friendly interfaces and high interest rates on a number of stablecoins and other assets.
MetaverseLife Smart Portfolio
Metaverse is a Web3 virtual reality with all the attributes of real life, where you can live, communicate, buy land, celebrate weddings, etc. If you like complex computer games, virtual communication, and you’ve watched “Ready Player One” and “Free Guy”, then it is quite possible that you will want to invest in metaverses.
The most well-known, viable and capitalized metaverses as of February 2023 are Sandbox (SAND), Decentraland (MANA), and Axie Infinity (AXS). Their tokens are in the Top-50 with a market cap of about $1.2-1.4 billion each.
In addition to the direct purchase of metaverse tokens, you can also invest in them indirectly, for example, through the eToro investment platform offering The MetaverseLife Portfolio. This portfolio includes stocks and crypto assets of relevant projects, and once you plunge into these worlds, you will either reject them at once, or, on the contrary, be inspired by the huge prospects.
Buy Land in the Metaverse
Buying land in the metaverse is one of the options of investing in Web3, even if it’s still quite controversial. However, when a lot of people play the game, and it gets rooted in reality, becoming its integral part, no one thinks about how much certain assets are “actually” worth. Today, the land in a metaverse may seem an even stranger investment than a plot of land on the Moon, but don’t forget that gold is also just a piece of metal, a dollar is a piece of paper, and Bitcoin is program code. Price is a balance of supply and demand, mixed with engagement, trust and traditions, so buying land in the metaverse may not be the worst option for investing in Web3, especially if you share the virtual realities philosophy.
One of the convenient platforms for buying land in different metaverses is the OpenSea marketplace. Here, almost like on a regular country real estate aggregator, you can walk through various metaverses and choose a plot you like.
If you have already wondered How to invest in web3 crypto tokens? then the question of How to invest in Web3 stocks? must have also appeared in your head more than once, especially if you are a traditional financial markets fan. Web3 stocks connect Web3 to the real financial world as well. You don't have to own physical gold if you want to invest in it - you can buy the shares of gold miners or a corresponding fund. Also in Web3 - if you are still committed to the classic public markets, you do not have to buy Web3 tokens, you can just buy shares of Web3 companies to invest in Web3.
In spite of the highly anticipated IPO, so far Coinbase has not been able to achieve success in the traditional market, since its investors are more wary of everything new, and especially Web3, bearing in mind the dot-com bubble of the late 1990s, which happened just in the wake of the transition from Web1 to Web2. However, if we draw an analogy with that time, Coinbase is more like Amazon, which has more than successfully survived to this day, unlike the thousands of projects buried in the abyss of the collapse that followed, so today COIN (Coinbase ticker) is perhaps one of the most attractive Web3 stocks to invest in.
Another, less aggressive option may be the stocks of computer equipment manufacturers, since it is clearly necessitated by the Web3 technologies development. Companies such as NVIDIA, IBM, AMD and many others contribute to the Web3 industry in one way or another, or have specific plans for their participation in Web3 projects.
Web3 technologies are gradually penetrating Twitter, one of the largest public social media companies that already allows you to upload NFT to your profile - and this is clearly just the beginning.
IPOs of Web3-related companies usually occur when the market is filled with optimism and is growing uncontrollably, so there is no doubt that in the next growth phase new shares of the Web3 sector, are waiting for us, and the opportunities for investing in Web3 in the traditional market will expand significantly. There are many financial services, e.g., FinViz or Crunchbase, that can help you choose a suitable company by filtering them by the required parameters and studying their statistics before you make a decision.
ARK Fintech Innovation ETF
In addition to buying tokens and shares, you can invest in the appropriate funds, so-called ETF (Exchange Trust Funds). The advantages of funds are that analysts already did all the work for you, so an ETF is a ready-made product in which you can invest without going into details. Let's say you want to invest in Web3, that is, by and large, in fintech. So you can find a fintech fund and invest in it.
Today, Web3 investment opportunities are already far more attractive than Web2, so changing the sign is extremely important for attracting financing. Everything related to the Internet is trying to transform into Web3, and the Internet of Things is no exception. IoT may well exist in Web2, where sensors also receive data, and information is exchanged through central control nodes. However, Web3, as many other segments, eliminates intermediaries and maximizes the security of data transmission.
The use of blockchain to record information in the IoT allows you to simultaneously achieve a high level of security and transparency. In Web3, every IoT device has a reliable and cryptographically protected history, which is easy to verify in the blockchain. Thus, IoT in Web3 moves to a qualitatively new level of security, where hacking the system is practically impossible, and machine activity is token-incentivized.
As you can see, it is not so important where to invest in Web3. Whatever side you are coming from - Web3 is knocking on your door. Web3 gives us ownership of the internet and gives us back control over our data. As Web3 develops, the virtual world will integrate increasingly more with the real world and complement it with digital services. Web3 is at the very beginning of its journey, so now is the best time to invest in it.