Investing in web3: A guide to the future of finance

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The promise of the Web3 industry goes beyond cryptocurrencies, with emerging projects and stocks catching the eye of investors. The Web3 investment space is attracting VCs, tech enthusiasts, institutions, and developers looking to profit from this accelerating industry. Opportunities for investments are surfacing as new use cases for Web3 emerge across social networks, gaming, NFT marketplaces, and more. Investors can diversify their portfolios and earn high returns through investments in Web3 assets with projected future growth. However, keeping the risk level in check for these assets will be crucial to avoid losses.

How to invest in web3

Web3, the latest iteration of the internet, is opening up a wide array of investment opportunities for institutional and individual investors. Venture capitalists and angel investors are pouring their funds into these emerging assets that can generate a handsome return on investment. Individual investors also have lower barriers to entry while investing in Web3, as they can enter the space by simply crowdfunding Web3 projects on platforms such as Kickstarter or Indiegogo.

The Web3 ecosystem spans from cryptocurrencies to companies harnessing the technology through investments or those developing new solutions. Web3 asset classes are categorized into equity and digital assets. These assets can be invested actively or passively, and investors can diversify their portfolios by picking a mix of assets based on goals and risk tolerance.

Here are a few Web3 asset types worth investing in:

• Web3 stocks of companies actively investing in or building Web3 projects can be a good investment opportunity for growth.

  
  

• Web3 projects, though seen as risky, can be invested in to gain potentially high rewards.

  
  

• Web3 cryptos, like Ethereum or Bitcoin, are one of the most straightforward and popular ways of investing in Web3.

How to invest in Web3 stocks?

When investing in Web3 stocks, investors must look for shares of companies relevant to the Web3 industry and key in building the space. This reduces investment risk and increases the potential reward. Smaller companies in the Web3 ecosystem can be a good investment, as they may have lower prices but could grow substantially in the future, generating more value. Ultimately, making the right asset choice comes down to investors conducting thorough research to evaluate which stocks align with their goals and risk appetite.

Some popular stocks in the Web3 space are:

• Coinbase (COIN): One of the largest crypto exchanges founded in 2012 to securely buy, sell, transfer, and store cryptocurrencies.

  
  

• Advanced Micro Devices (AMD): A leading company producing semiconductor chips venturing into the Web3 space by creating artificial intelligence (AI) and graphic chips.

  
  

• MicroStrategy (MSTR): MicroStrategy is a well-established analytics and business intelligence company investing heavily in cryptocurrencies like Bitcoin (BTC).

How to invest in Web3 projects?

The nascent Web3 space shows promise as projects focusing on cybersecurity, blockchain, metaverse, AI, and machine learning continue to emerge. These technologies are used to build financial products, services, and social networks that leverage Web3 and blockchain technology.  Though investing in Web3 projects could be risky, keeping an eye out for promising projects backed by reputable organizations and researching them well will help make an informed investment decision.

Some examples of Web3 projects are:

• Filecoin: With a market capitalization of $2.5 Bn, Filecoin is a decentralized storage network creating a secure way to store information.

  
  

• Uniswap: A leading decentralized finance (Defi) protocol that enables the automation of trading Defi tokens.

  
  

• Axie Infinity: A decentralized application focused on gaming where users can nurture fantasy creatures known as Axies.

Can you buy Web3 crypto?

Cryptocurrencies are versatile assets that act as a store and exchange of value. The crypto market offers several digital coins like Ethereum, Bitcoin, and Litecoin that can be invested in to earn passive income from price escalations. Specific Web3 platforms even have their own native tokens that can be invested in.

Investing in cryptocurrencies, NFTs, and the metaverse can sometimes cause an overlap. This means that investing in a cryptocurrency like Ethereum could expose an investor to other Web3 categories like NFT marketplaces and metaverse platforms built on Ethereum.

While investing in promising Web3 cryptocurrencies can be a great addition to investor portfolios, they can also be highly volatile. Evaluating each currency’s risk and potential growth is essential before investing.

Who invests in Web3?

• Venture capitalists (VCs) and angel investors:  Notwithstanding the volatility of the ecosystem, VCs are drawn to the Web3 industry because of its potential for significant return on investments in the long run. Over the past few years, investors have funded Web3 companies with $94 billion, with major investments made since 2021. VC investments into startups focusing on crypto and decentralized finance (Defi) grew sixfold in 2021.

  
  

• Tech enthusiasts: Tech gurus who believe in the potential of Web3 to revolutionize the internet are flocking to invest in it. Cathay Hackl, a tech futurist, is also a VC partner at WXR, which focuses on funding women-led AI, augmented reality (AR), and metaverse startups. Another such enthusiast, Chris Dixon, one of the pioneering investors in Web3 and a partner at a16z, has invested $2.2 billion in Web3 companies in 2021 with plans to continue investing going forward.

  
  

• Institutional investors: Hedge funds and asset management firms want to diversify their portfolios through Web3 investments. More than a third of conventional hedge funds have started investing in digital assets, according to PwC’s Global Crypto Hedge Fund Report 2022. There is bound to be a steady rise in institutions adopting this new asset class as larger acceptance of Web3 technologies is achieved.

  
  

• Developers and entrepreneurs: The Web3 industry had at least 18,000 developers building projects in the ecosystem, according to VC firm Electric Capital’s report published in 2022. Developers and founders building Web3 infrastructure are investing in the space to support their own projects. These investors code open-source and Web3 projects at least once a month, highlighting their interest in this space. Ethereum and Bitcoin are popular among open-source developers, whereas Polkadot and Cosmos are popular choices for Web3 development.

  
  

• Crypto investors: Crypto investors are also shifting gears with increasing investment interest in Web3-specific cryptocurrencies as innovative use cases emerge. These cryptos are a new generation of cryptocurrencies that are native tokens of Web3 projects created to incentivize the building of a new decentralized internet.

Web3 investment opportunities

Investing in Web3 infrastructure

These companies focus on providing the necessary tools and services to allow the Web3 ecosystem - which consists of developers, enterprises, and individuals, to build Web3-based applications. These organizations lay the foundation for facilitating the industry's growth and can be a good investment for those looking to invest in Web3. Some examples of Web3 infrastructure are:

• ConsenSys: A established Ethereum-based software company enabling entities to access Web3 technology, launch applications, and build financial infrastructure.

  
  

• Chainlink: An industry leader in providing Web3-based services allowing non-blockchain businesses to connect with blockchain technology.

  
  

Investing in Web3 social networks

The primary point of differentiation of Web3 social networks from Web2 ones is that they are decentralized networks. These networks use blockchain technology to determine content ownership and monetization, giving users more control and security over their data. These networks are the future of social media and are a great place to start investing. Some examples of Web3 social networks are:

• DLive: This Web3 social media platform allows creators to live-stream content and earn rewards through its revolutionary system.

  
  

• Steemit: A decentralized application (dApp) based on the Steem blockchain that uses its own native currency STEEM to reward content creators.

Investing in Web3 marketplaces

Several marketplaces exist to facilitate trading of digital assets like non-fungible tokens (NFTs). These blockchain-powered platforms allow individuals to buy, sell and create NFTs with underlying cryptocurrencies that enable these transactions. Some examples of Web3 marketplaces are:

• OpenSea: OpenSea is one of the largest NFT trading marketplaces attracting 2.4 million monthly active users. The platform also generated a daily trading volume of $6.03 million as of November 2022.

  
  

• Rarible: Rarible is a prominent NFT and digital art marketplace running on Ethereum blockchain technology.

Investing in Web3 gaming

Blockchain technology is used to build games that have their own virtual economies. These blockchain-based games have in-game assets that players can buy, own and sell. Some examples of Web3 gaming are:

• The Sandbox: This virtual world built on blockchain technology allows players to create and explore unique experiences.

  
  

• Cryptokitties: Established as one of the first blockchain-based games, Cryptokitties allows users to create their own cat-themed NFTs, which can be traded in the game. At its height of success, Cryptokitties attracted 14,000 daily active users.

Investing in Web3 decentralized finance (DeFi)

Web3 is driving the emergence of a new financial technology called Defi, based on distributed ledgers. These protocols allow for peer-to-peer lending, borrowing, and trading in finance by eliminating intermediaries. Seen as the next frontier of finance, Defi is catching the eye of several investors. Some examples of Web3 decentralized finance are:

• Aave: A leading Defi protocol that facilitates the lending and borrowing of cryptocurrencies eliminating the need for centralized intermediaries.

  
  

• Synthetix: A derivative liquidity protocol allowing anyone to access blockchain assets and partake in derivative trading.

Conclusion

Web3 technologies are presenting new investment opportunities for individual and institutional investors alike. The increased accessibility to several digital assets through Web3 makes it an excellent way to earn potentially high returns on investment. Investors can diversify their portfolios by investing in different Web3 assets, including Web3 stocks, Web3 projects, and Web3 cryptocurrencies. Industry subsectors ranging from Web3 infrastructure, social networks, marketplaces, games, and decentralized finance can all be viable investment opportunities as these business categories evolve. While the market is volatile, investors must tread carefully by conducting research, evaluating investment goals, and measuring risk appetite to ensure they can benefit from the Web3 space.

Are you looking to invest in Web3? We can help you invest in the metaverse platforms from The Sandbox to Decentraland. Get in touch with us!