The State of Web3 in 2023
How Web3 is transforming brands, the 5 key themes of 2023, top resources, and what's next.
Dear Readers,
Despite major challenges, 2023 marked a year of notable progress for the Web3 consumer space:
Over 40 leading brands of Interband’s Top 100 Global Brands have announced new Web3 activations.
Among them, brands like Nike and Starbucks are transforming customer engagement and value creation.
Meanwhile, Dematerialzd.xyz has grown from less than a thousand to almost eight thousand readers. This wouldn’t have been possible without my partners, all the inspiring conversations with innovators in the space, and YOU.
I realize that the pace of long-form analysis in recent weeks may have left some of you playing catch-up.
This is why today's issue provides a succinct summary of 2023’s key insights, preparing you to move into 2024 well-informed.
Thank you for your trust. Sharing my thoughts with you weekly is an immense honour. Stay tuned for exciting updates on Dematerialzd.xyz.
Let’s dive in!
Web3’s 2024 catalyst? Interoperable loyalty.
Web3’s open, shared data layer enables permissionless co-branded loyalty ecosystems. This means that brands can accept loyalty reward status and points from other brands through token-gating, lowering the costs of building loyalty ecosystems significantly and increasing network value. Download Magic’s interoperable loyalty deep dive for free.
How Web3 is Transforming Business
Web3 is underpinned by two fundamental mechanics:
Digital ownership, scarcity, and transferability of assets: Users can control and transact digital assets without the need to trust a third-party platform. This enables genuine digital scarcity.
Wallet centric interaction model: The wallet becomes the user's main point of interaction.
This transforms how consumers and businesses relate and create:
Web3 enables a new era of "community-led brands," with built-in ownership, fostering collaboration and shared value creation within a brand’s broader cultural narrative.
Deep dive 1: Community, Culture & Brands
Deep dive 2: A Web3 Community Formula for Brands
Web3 based, community-led brands work different than traditional brands:
On a small scale, Nike’s .SWOOSH, Starbucks’ Odyssey, or Fiat’s “FIAT Pass” activations already operate based on some of those principles.
Deep dive 1: Nike Case Study
Deep dive 2: Starbucks Case Study
Deep dive 3: Fiat Case Study
Deep dive 4: Gucci Case Study
Meanwhile, blue-chip NFT collections are starting to build IP brands, operating as community-led licensing businesses (e.g. Pudgy Penguins).
Deep dive: Penguin Business
5 Key Themes of 2023
Here are the major developments of the year:
New brands entering Web3
Record high NFT-patent applications
Emerging Web3 use-cases for brands
Fundraisings are picking up
UX & Wallet improvements
New Brands Entering Web3
At the beginning of the year, 40% of Interbrand’s Top 100 Global Brands had launched Web3 activations. Now, this number stands at 47%.
Over 40 of them have launched new Web3 activations in 2023.
Among them, brands like Nike and Starbucks are transforming customer engagement and value creation.
Deep dive: How 13 Top Brands Are Using NFTs
Record High NFT-Patent Applications
NFT-related patent applications have skyrocketed in 2023, far exceeding previous years:
In 2023, brands filed 14 times more patents than in 2020, seven times more than in 2021, and almost twice as many as in 2022.
Top 5 applicants in 2023:
Bank of America (30)
Shopify (15)
PayPal l (14)
Nike (11)
Salesforce e (10)
A growing trend in NFT patents involves "phygitals," physical products linked to NFTs. Brands like Mercedes-Benz, Ferrari, Nike, Adidas, and eBay are actively pursuing this.
Deep dive: Key Insights from 3,200+ NFT Patents
Top Web3 Use Cases in 2023
A key trend of 2023 was a shift from small, isolated use-cases to more complex activations.
In 2023, top brands launched Web3 activations that go beyond simple collectibles, integrating into broader loyalty strategies or physical-virtual activations.
For example:
Nike launched a the “OurForce 1” collection on its Web3 platform .SWOOSH. The collection was part of a co-creation contest, inviting users to design future virtual footwear. Later this year, Nike dropped a physical sneaker only available to users participating in .SWOOSH activities, turning it into an intricate interplay between virtual and physical experiences.
Among these use-cases, three bigger verticals have emerged in 2023:
Tokenization/Phygitals: Owning a physical product unlocks a corresponding digital collectible, or vice-versa (e.g. Nike, Adidas, Dior, Alo Yoga, etc.)
Deep dive 1: Tokenization in 2024: Opportunities for Brands
Deep dive 2: The Potential of Web3 Commerce for Brands
Loyalty: NFT-based reward programs with blockchain-based loyalty economies within brand ecosystems (e.g. Stabrucks, Fiat, etc.)
Deep dive 1: Web3: The Future of Loyalty?
Deep dive 2: Tokenization and Interoperable Loyalty
Deep dive 3: Magic’s free interoperable loyalty deep dive1
Data: All these activities generate a wealth of first-party data, stored in wallets. Using this to develop direct, personalized customer relationships is a big opportunity in Web3, particularly as cookies decline.
Money Moves: Fundraising Snapshot
Total Web3 funding in 2023 sits at $9.5 billion, down 77% compared to 2022 ($42 billion).
Early-stage deal share (angel, pre-seed & seed round) decreased to 40%, in line with the 2023 average, falling below the 2022 average of 46%.2
Here’s a list of all the funding rounds of 2023.
The most interesting consumer Web3 funding rounds were:
Dynamic: $13.5m round led by A16z. Web3 onboarding.
Privy: Raised a $18m series A led by Paradigm. Web3 onboarding.
IYK: Raised $17m from a16z crypto. Tokenization & phygitals.
Bastion: $25m seed from a16z crypto. Web3 solutions for brands.
Blackbird Labs: $24m in Series A led by A16z Crypto. Customer loyalty for hospitality.
GEEIQ: $8.2m Series A. Data platform for luxury brands.
Animoca Brands: $20m for Mocaverse project.
Magic: $52m strategic funding round, led by PayPal Ventures. Wallet-as-a-service provider.
UX & Wallet improvements
Previously I said that the biggest Web3 challenges to be solved are:
UX (✅)
Interoperability ❌
Scaling ✅
Privacy ❌
Today, I believe that we’ve solved 1.5 of 4.
1. Scaling
2023 was a year of scaling. Codename: “Layer 2”.
Layer 2 (L2s) chains extend the underlying layer 1 chain to enhance scalability, and they are booming:
In February, Arbitrum, one of the biggest L2s by volume, counted more transactions per day than the Ethereum main layer (L1).
In 2023, several new L2s launched, including Coinbase’s Base, Consensys’ Linea, or Binance’s opBNB.
The number of L2s is likely to increase further. Meanwhile, alternative, highly-scalable chains such as Solana have experienced a renewed boom of usage.
2. Wallets
2023 was a particularly big year for wallet UX thanks to Ethereum’s EIP-4337 update in 2021. Codename: “account abstraction”.
It makes wallets much easier, as it allows for:
easy wallet recovery
transactions without the need for signatures
social logins
collaborative team wallets (multi-sig)
spending limits
gasless transactions
… and much more. All while increasing security.
These wallets are called “smart contract wallets”. In 2023, monthly active users are growing rapidly. They saw about a 10x decrease from June to December.
How could this drive Web3 adaption? An example: Friend.Tech.
Friend.Tech is a decentralized social network and the biggest consumer Web3 app of 2023, with an inflow of $0.5+ billion and over 12 million transactions.
Its app is uniquely enabled by account abstraction:
simple onboarding with social accounts
gasless interactions
mobile first: once the wallet was connected, it could be used as a simple offline web app.
In 2023, brands started to embed wallets much more seamlessly into existing interfaces to a point where users stop noticing that they even use a wallet.
This is possible thanks to improved wallet software development kits (SDKs) and professional wallet-as-a-service providers.
In 2022 seamless onboarding was seen as cutting-edge, in 2023 we’ve started to see it more broadly, and in 2024 it will become the de-facto standard.
Wallets will be the main consumer interface of Web3 what browsers were for the internet.3
What’s Next
Moving into 2024, I expect more pratical use-cases that go beyond mere digital collections.
These use-cases will likely pop up along the two verticals of loyalty and tokenization/phygitals.
Blockchain-based activations will likely be combined or even merged with immersive virtual experiences, enabling more complex, gamified physi-digial consumer journeys.
A key challenge for brands will be to create sustained engagement instead of one-off hypes. Further, brands will have to grapple with giving away brand authority and empowering consumers along the way.
Done right, digital assets are becoming a tool of self expression for consumers – and for brands an opportunity to create much richter storytelling and brand experiences.
Again, thank you for being part of the journey.
Talk soon,
Marc
Source: cryptorank
GEM 💎💎💎💎