Event Recap: Building in Web3

On October 20th, we had the honor of inviting Mary-Catherine (MC) Lader of Uniswap Labs, Joshua Tan of Metagov, and Scott Fitzsimons of CityDAO to join us in a conversation about Building in Web3 as the first panel to our three-part Perspectives in Web3 Virtual Series.

Here are some key takeaways from our event:

• Leveraging the distributed technology of blockchain, “web3” projects such as decentralized finance (De-Fi) promises broader distribution of resources, more financial inclusiveness and a lower barrier of entry to exchanging value. However, although the idea of an “open Internet” is appealing, the success of web3 in achieving these benefits is not necessarily inevitable, but rather relies on who leads it and what values are encoded into the designs of these systems.

• From a technical standpoint, a unique value-add of blockchain is interoperability, which provides a “consistent global state” for programming. This has the potential to drastically reduce the cost of data integration in current practices that use web2 technologies.

• The key hurdles and challenges of building in web3 range from navigating regulatory ambiguity to designing effective decentralized governance.

• The industry is still in its experimental stages and a vibrant community is testing out all sorts of interesting applications. Skepticism towards web3 is in fact healthy in helping move the field forward. Establishing mutual understanding between web3 builders and policy makers is key to exploring and unleashing the real potentials of this tech stack.

What is web3 and what projects are out there?

Lacking a set definition, the term “web3” coined by Ethereum co-founder Gavin Wood is often used to describe the next iteration of the Internet built on distributed ledger technology that is more open and decentralized.

Our panelists demonstrate a rich diversity of projects that can be built in web3. Uniswap Labs builds products on top of the open source, decentralized trading protocol that its team initially developed but does not control. Unlike centralized crypto exchanges such as Coinbase, the Uniswap Protocol is a peer-to-peer communication protocol that allows users to swap any tokens with each other directly, without any intermediaries. CityDAO is a decentralized autonomous organization (DAO) that is experimenting with tokenizing land, rights and governance on the Ethereum blockchain. Following the passage of the Wyoming legislation last year which recognizes DAOs as legal entities, CityDAO has acquired 40 acres of land in the state of Wyoming to test novel forms of land ownership and governance. Metagov is a research group that builds standards and infrastructure for online governance. 

Potential values of web3 and blockchain

Our panelists have enumerated a number of key benefits of web3 and its underlying technologies: including (1) allowing for financial inclusiveness through cheaper and faster way of transacting values; (2) enabling fairer distribution of resources through removal of intermediaries; (3) giving ownership and control of data back to the consumers. However, they also remind us that the appeal of decentralized Internet democracy should not be taken for granted, as it really depends on who is leading the projects and what kinds of social values are built into these technological systems. 

A question often used to target web3 technologies is: what is the unique value-add of blockchain in comparison to existing web2 technologies? Do we really have to use blockchain? According to our panelists, from a technical perspective, blockchain enables interoperability through a “consistent global state” for programming. Currently, 70% of all IT spending in the U.S. is spent on data integration and it is extremely difficult to achieve consistency that is simultaneously serviceable. From a technical standpoint, blockchain forces things into a consistent schema that is technically beneficial for building software that can speak to each other.

Challenges in web3

Given how nascent this industry is today, builders in web3 face several challenges. One of the main challenges is the regulatory ambiguity builders face as they try to navigate and operate in a space without much clarity. Current regulatory proposals are hotly debated and risk stifling the potential of decentralized services and technologies. There is a desire amongst builders for legislators to be more aware of how the underlying technology and protocols work so they can make more informed policy decisions. It’s also important to look at a variety of project types and applications of the web3 technology stack in order to understand all of the different opportunities which exist – while “rug pull” projects are harmful, there are other interesting types of cooperative projects worth protecting and enabling. The regulatory ambiguity that exists today leaves many builders operating in a difficult gray area, but there is a need for policymakers to understand the nuance of the technology and applications in order to create more clarity for projects in this space.

Meanwhile, DAOs are facing more existential challenges. While they have the potential to disrupt established forms of organizations, DAOs are currently trying to find their best long-term fit. Democratic elements of a DAO add additional complexity and it remains unproven where DAOs will find their stride in comparison to their more traditional counterparts. Effective governance also remains an open question and challenge for many organizations in web3. Internally, DAOs are faced with balancing the efficiency of leadership in an effort to prevent the “tragedy of the commons”, while also remaining sufficiently decentralized. Organizations are learning that people still need leadership and ideas to be put forward. The question is how to reduce initial coordination costs through more blueprints or guidance at the inception of the organization, and how it’s important to be clear about what decisions the organization is actually trying to govern in a decentralized manner.

Exploring more in web3

For those interested in learning more about web3, our panelists recommended the best way to learn was to jump in and try building yourself. Whether it’s a hackathon, experimenting with building a project, attending conferences, using the products, following along on Twitter, or just starting to meet and talk with people in this space – it can be helpful to learn by doing. 

Our panelists also agreed it’s healthy to have a degree of skepticism – it’s critical to both understand all the things going wrong in web3, as well as the innovations (e.g. zero knowledge proofs) happening in this space. The field will continue to iterate and evolve over the coming years and having a critical lens will be important in making the field more robust. When looking ahead to the future of web3, our panelists were hopeful of the prospects of enabling cheaper and faster ways to move money around the world, the efficiency of operating without intermediaries, and the future of open source enabling new modes of economic production while making the internet a better place.

Be sure to register for our next virtual panel, Investing in web3, on November 17, 2022, 4-5 PM ET.