The explosion of Web3 is imminent: Investment experts analyze industry development and entrepreneurial opportunities.

The Web3 user base continues to rise, and as of the end of July, the number of independent addresses for Ethereum domain services has surpassed 500,000. Since 2017, the Web3 infrastructure has gradually improved, evolving from a "muddy road" to an "asphalt highway". However, the prosperity of the industry ecosystem is still highly correlated with market bulls and bears, the value of on-chain data has yet to be fully tapped, new application scenarios and user interaction mechanisms are yet to be developed, and the Web3 industry is still on the eve of an explosion.

Recently, a capital partner discussed the development of the Web3 industry, investment layout strategies, and observations on the entrepreneurial ecosystem with other investors. The following are the main points:

Core viewpoint:

• The greatest value brought by blockchain technology lies in its composability and unified database.

• Web3 reshapes data value, and how to develop this data gold mine is a highly promising innovation direction.

• The value creation at the application layer comes from new mechanisms and interaction methods, rather than simply transforming traditional Web2 products.

• The Web3 explosion is still in its early stages, and startup teams should focus on finding real product demands and target users, rather than blindly following bull market trends.

From the perspective of entrepreneurs, the development of the Web3 industry:

In 2017, when entering Web3, aside from Ethereum, other chains and development tools were not well-developed, and the infrastructure such as wallets was also inadequate. After four years of development, the infrastructure has gradually improved, transforming from "muddy roads" to "asphalt highways." The middle layer and protocol layer have achieved an explosion from 0 to 1, and the application layer has also experienced its first explosion. The tracks of games, NFTs, and the metaverse are still in the early stages. Many leading projects were born at the end of the last bull market and the beginning of the bear market, such as OpenSea, Sandbox, and Uniswap.

The core value of blockchain technology:

1. Composability: Permissionless combinations and calls at the code level, allowing digital assets to natively interoperate across applications.

2. Unified Database: Integrate the vast data behind Web2 applications, allowing users to log in to various applications with just one Address.

Two important investment themes:

1. Data: On-chain data is a "gold mine", and labels can be applied to addresses for analysis. From the underlying data sources, to data cleaning, analysis and indexing, and then to protocol layer projects and tool applications based on data, unicorn companies have emerged at every layer.

2. Application Layer: It is expected to see a large-scale explosion in the next 3-4 years. Successful applications need to combine blockchain characteristics, innovate mechanisms and gameplay in specific scenarios, and unlock new ways for user interaction.

Advice for entrepreneurs:

• Reserve enough funds to cope with a bear market, at least prepare funds for 2-3 years.

• Focus on finding real product demand and target users during a bear market, avoiding blindly following trends.

• First become a believer, then become a builder, and maintain a strong belief in the industry.

• Put aside historical burdens and reflect on entrepreneurial directions after immersing in the industry for a period of time.

Characteristics of Web3 Investment:

• It is difficult to conduct in-depth due diligence as many project teams are dispersed across the globe.

• The investor structure is more complex, and a single round of financing may involve dozens of institutions.

• Whether institutions can provide value-added services for projects becomes an investment threshold.

Investment Preference:

• Focus on infrastructure and middleware, with an emphasis on the underlying development environment and foundational construction.

• The application layer focuses on innovative gameplay, mechanisms, and design.

• Prefer creative products rather than homogeneous products.

• Value entrepreneurs' attention and insight into the industry.

Challenges faced by the industry:

• The user base is small and mainly focused on taking advantage of promotions.

• There is a gap between the actual situation in the industry and external appearances, and it requires personal experience to understand.

The value of investment institutions:

• Provide in-depth support and advice at the business and product level.

• Assist in the design of token economic models, resource docking, project cooperation, etc.

• Help recruit talent.

• Gain an in-depth understanding of the invested projects, provide insights in the direction, and assist in their development.