As bitcoin prices stall for months, some cryptocurrency traders are speculating on what could be the market’s next bet: digital assets associated with visions of a decentralized internet, colloquially referred to as Web 3.0 tokens.
Data tracked by Messari and released by Arca Chief Investment Officer Jeff Dorman shows the cryptocurrency subsector of ‘Web 3.0 tokens’ gained 22% in the week ending August 1 , overtaking bitcoin and all other sub-sectors, including non-fungible tokens. (NFT). Bitcoin, the largest cryptocurrency by market value, rose 10%.
Since the start of the year, tokens associated with decentralized internet applications have seen an average increase of 244%, behind the 2,726% gain of the NFT sub-sector but exceeding the 37% appreciation of bitcoin.
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Some of the most important Web 3.0 coins, such as livepeer (LPT), helium (HNT) and bittorrent (BTT), have risen by at least 800% this year, despite a collapse in the cryptocurrency markets since April, according to Messari.
“Seeing the Web 3.0 ecosystem grow exponentially since the start of the year and keep the majority of its earnings after the capitulation even in May is very positive for the crypto market,” Nick Mancini told CoinDesk, research analyst for Trade The Chain. “Higher prices are directly related to increased demand and the expansion of services in each layer, and as a result, the ecosystem is able to continue to grow. “
Web 3.0 refers to a paradigm shift for the Internet operated by network participants around the world and defined by a set of open, low trust, and decentralized networks and protocols providing services such as computing, storage, bandwidth, finance and identity.
For example, the Ethereum-based Livepeer protocol provides a marketplace for video infrastructure providers and streaming applications, while Filecoin and The Graph provide decentralized file storage and data management networks. Helium uses blockchains and tokens to incentivize consumers and small businesses to provide and validate wireless coverage and transfer data from devices across the network.
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Messari’s tracker shows that the Web 3.0 token subsector, which comprises more than 40 coins, has a total market valuation of $ 25 billion, excluding oracle provider Chainlink. (The oracle provider is widely associated with decentralized finance and has a market cap of $ 10 billion).
However, considering only top-tier projects like The Graph, Filecoin, Helium, and Livepeer, the market cap for Web 3.0 tokens is less than $ 15 billion. This is only 2% of Bitcoin’s total market cap, which stands at $ 735 billion. But it’s similar to the size of the Decentralized Finance (DeFi) space a year ago. Data from Messari shows that the DeFi sub-sector now has 137 assets and is worth more than $ 50 billion.
Awaiting general public attention
While Web 3.0 tokens have vastly outperformed bitcoin and other major coins this year, the industry has yet to witness the euphoria or general attention that the Bitcoin, Ethereum, DeFi, NFT and even Ethereum layer 2 have received since October 2020.
This is probably because the underlying technology is relatively complex.
“Web 3 is not as easy to understand as DeFi, and it is probably 12 months behind DeFi in terms of mainstream outreach,” said Kyle Samani, co-founder and managing partner of Multicoin Capital. “We expect this to change as consumer apps based on NFTs, social tokens and creator monetization grow over the next 12 months, such as Audius, Mirror and many more. ”
The DeFi boom started a year ago and has remained intact to this day. The industry’s market capitalization has grown from around $ 5 billion at the start of 2020 to over $ 50 billion at the time of publication.
Samani is convinced that Web 3.0 tokens will catch up, as DeFi sometimes gets a bad rap; However, there is still no negativity associated with the idea of a decentralized internet. Recently, Commodity Futures Trading Commission (CFTC) Commissioner Dan Berkovitz said DeFi derivatives may be illegal in the United States.
“No one is really saying The Graph, an indexing protocol for querying networks like Ethereum, Solana, and IPFS, is bad, when a lot of people in the existing financial system say DeFi is bad,” Samani said. “As the notoriety of Web 3 grows, it’s hard to see anything other than general support and enthusiasm. “
While mainstream adoption is still at least a year away, investors with deep pockets are investing money in Web 3.0 tokens. Multicoin Capital is invested in The Graph, Helium and Livepeer, according to the official website.
Grayscale, the world’s largest digital asset manager and the preferred location for institutional investors to gain exposure to digital assets, launched a livepeer trust in March. Rayhaneh Sharif-Askary, director of investor relations at Grayscale Investments, told CoinDesk last month that investors are diversifying into Web 3.0 tokens.
“It’s diversification within the asset class, if investors want exposure to bitcoin as a store of value, Ethereum for smart contracts,” Sharif-Askary said.
“And then other apps beyond that build on those networks and solve other real-world issues,” she said, adding that Grayscale’s Livepeer trust is structurally identical to the historic Grayscale Bitcoin Trust. (GBTC) (Grayscale is a unit of Digital Currency Group, an investment holding company that is also the parent company of CoinDesk.)
Livepeer’s LPT token is up 1,050% this year. Weekly protocol earnings increased tenfold to over $ 10,000 from February through June, according to data provided by Web3Index.
Doug Petkanics, CEO and co-founder of Livepeer, told CoinDesk that online streaming is a $ 70 billion market and today accounts for 80% of internet traffic. In addition, the market is expected to grow from $ 70 billion to $ 250 billion over the next five years, according to analysts’ projections, Petkanics said. The outlook for The Graph and Ocean Protocol is also bright, as indicated by Messari’s second quarter review.
Aside from the strong use case, many of these Web 3.0 tokens offer attractive returns through Staked, a platform that allows investors to earn returns through staking and DeFi without taking custody of their crypto assets. .
For example, Helium’s HNT token currently offers an annualized nominal return of 8.7%, while The Graph’s GRT offers a 15% return and LPT offers a 30% return. The high yields have led to positive sentiment for these tokens as seen in the sentiment chart below.
“Traders feel upbeat about them, which fuels a network effect,” Mancini said. “Traders profit and bet, and, in turn, tell others about the inordinate opportunity.”
The crypto market is much more than Bitcoin
Gone are the days when investors saw crypto markets as synonymous with bitcoin. While bitcoin remains the number one cryptocurrency by market value, the recent underperformance against other coins suggests that investors are diving deeper into digital asset markets to find investments with the potential for faster growth.
“One week’s data might not mean much, but if we look at three months, six months and 12 months, there is a clear shift from bitcoin to other sub-sectors, Web 3.0. being one of them, ”said Jeff Dorman d’Arca. in a Telegram call.
According to Arca’s research note released earlier this week, bitcoin has had “both an upside bad catch and a downside bad catch” this year. Clearly, bitcoin struggled to outperform other major coins during the market downturn seen after mid-April, but was also disappointing as the market rallied over the past two weeks.
According to Dorman, the data shows some new investors are bypassing bitcoin and ether and heading straight into other subsectors of the industry. Historically, investors have used the first two coins as gateways.