Interview with CNA938’s Money Mind – Web3’s Brutal Year

Last month, Saniya Ramchandani appeared on CNA938’s Money Mind with Andrea Heng and Stanley Leong to tackle the elephant in the room – Web3’s roller-coaster year in 2022 and its outlook for 2023. 

Here is a summary of what was discussed in the interview:

Q: Can you give a brief overview of what constitutes Web3?  

A: Web3 has several definitions, but the common thread between all of them is blockchain – any way that blockchain is being leveraged, whether it is in transactions and finance through crypto or enterprises using private blockchains, web3 is an umbrella that brings everything together and creates public awareness with such concepts.

Q: How was the Web3 Industry in 2022?

A: 2022 was indeed a brutal year for crypto, but on the other hand, web3, overall, was not as bad as it was perceived. The general population associated web3 majorly with crypto, which is absolutely right because we do need crypto to transact in the space, invest, etc. but there is so much more to the industry. Unfortunately, this attachment also extends to sentiment, so when general sentiment for crypto went shooting down, web3 followed a slightly less steep hill down with it. There were some wins, which definitely did not get as much coverage as the losses.. But, now that the hype is fizzling out, developers are building real-world business applications.

Q: What stood out in 2022 [the bad] and why was it such a hallmark year?

A: 2022 had quite a few historic incidents – Axie Infinity being hacked for ~US$ 650 million, Terra-Luna’s algorithmic stablecoin de-pegging, 3 Arrows Capital and Celsius calling bankruptcy and of course the fall of the mighty FTX, just to name a few – were all headline issues. However, I wouldn’t say they were entirely crypto issues; we’ve seen this overleveraging, and in the case of FTX – misappropriation of funds – issues in traditional finance before.

While there were several negative incidents, there were also quite a few exciting events in the year, especially The Merge which solves multiple issues on the Ethereum chain like high gas fees and slow transactions, all without letting the users have any troubleshooting errors [to use an overused metaphor, it was like changing the engine of a plane mid-flight]. A lot of the real-world applications are being built on the Ethereum chain so this was a huge milestone for the industry. There were a few more quiet wins like government adoption and within applications in the supply chain and oil industry as well. 

Overall, 2022 has been a quiet building year for the creators, developers and enterprises. 

Q: Could the above [negative] incidents have been predicted by the public or experts?

A: Hindsight is 20/20, so it is always easy to analyse retrospectively and say it was possible, but there was always a risk. Even seasoned investors acknowledge this fact and can occasionally ride the wave of hype.

Of course, now, if someone had hyper-analysed Luna’s algorithm they might have been able to predict the fall. But looking at the risk-to-return ratio back then and deciding it is a completely different ball game.

With FTX, we are slapping a web2 structure [CeFi] on top of a web3 concept [crypto], which is not regulated as web2 – so in retrospect, maybe we could have seen it coming but like I said, hindsight is 20/20, so I would hesitate to say yes.

With a space so new, developing and under-regulated, investors and consumers need to do their own research and due diligence before getting involved.    

Q: Is the Web3 industry self-contained without leaving or having any impact on the global economy?

A: Web3 was originally born out of global macro events – the first cryptocurrency was mined right after the 2008 subprime crisis when trust in institutions had really taken a hit. The whole ICO wave also took place in the wake of the Cambridge Analytica scandal. So with institutional trust going down, trust in web3 goes up and vice versa.

Within Momentum Works, we conducted a comparative analysis where we found out that Tesla’s investors lost about US$ 700 bn over the year vs only US$ 8 bn lost in FTX, but FTX being the newer concept in the room, it took all the spotlight. 

The industry now is too big for it not to be tied to overall global macro events; there is definitely a strong link between the macro-economy and web3. 

Q: With all the events of 2022, will it impact the faith toward the industry in 2023?

A: For investors and the public, yes the faith has wavered since the sentiment of web3 is inextricably tied to crypto. But for the regulators, builders and real stakeholders in the ecosystem, the faith has remained pretty consistent – Web3 is an emerging industry with developers and enterprises working together to make real use cases of the technology. For example, the Singapore Government has been using the ecosystem widely to verify vaccination status, university degrees and diplomas on the blockchain already.

Q: What to expect from Web3 with the high-interest rates, recession on the horizon, and inflation on the rise in the background?

A: The biggest thing we can expect is regulation, especially in CeFi. FTX, 3 Arrows Capital, and Celcius are CeFi organisations which allow widespread access to web3 products. So their fall will definitely give rise to new regulations coming in. There will be more and more quiet building happening in the background with more real-world applications being tested, and even implemented. Businesses will be taking advantage of this technology but may not outright display it – the words to look out for are ‘decentralised’, ‘immutable’, ‘trust-worthy’, and ‘open source ledger’ as opposed to ‘web3’ – this is essential to build more consumer trust.

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