From Revolution to Real-World Value: How Companies Will Benefit from Web3 in 2024

Author:FRANÇOIS CANDELON, MICHAEL G. JACOBIDES, URS RAHNE AND KATIE ROUND

The dream of a grand meta-universe of virtual, augmented reality online presence in 2023, championed by tech giants including Meta CEO Mark Zuckerberg, has been dashed. While the concept gained early traction among tech enthusiasts, most consumers aren't buying it. As investors begin to pull out of meta-universe investments and flock to generative artificial intelligence, many business leaders are questioning the broader value of Web3.

In short, Web3 is a vision of a decentralized, user-owned Internet based on three fundamental technologies: blockchain (distributed ledgers); smart contracts (the ability to enforce protocols without third-party oversight); and tokens or tokenization (digital representations of assets, such as non-homogenized tokens, stablecoins, cryptocurrencies, or tokenization of real-world assets). Despite the disillusionment of the past year, there is still some value growth in this space, as people move away from the casino mentality that pervaded the early days of Web3 to pursue real-world value.

The rise of stablecoins and cryptocurrencies, which are cryptocurrencies in which real money or assets are pegged to digital currencies and have a global circulation of more than $130 billion, has enabled companies to conduct transactions faster and cheaper. For example, digital trading platform Airtm uses Circle's U.S. dollar-denominated pegged (USDC) coins for low-cost cross-border payments, saving up to $35% when paying remote workers. Blockchain and smart contracts are enabling the tracking and tracing of materials ranging from gold to airplane parts to carbon. De Beers' blockchain Tracr now tracks more than 100,000 gold gems per month, or about 151 TP3T of global production.Brands such as Nike and Puma are also using Web3 technology in conjunction with physical campaigns to achieve success in customer engagement.

This shift to more practical, value-based Web3 applications has industry leaders like Citi estimating that by 2030, digital currencies (CBDCs) issued by central banks could reach $5 trillion in circulation, while tokenization of real-world assets will approach $4 trillion. This is a far cry from the Web3 obituaries written over the past year.

From revolution to real value
Early versions of Web3 were born out of the revolutionary ideology of insurgents with the vision of becoming a replacement for existing institutions. However, what is now emerging is the fact that savvy stalwarts like JPMorgan Chase, Nike, and BlackRock are embracing Web3 and even integrating it into the systems of the existing institutions they once intended to destroy. The goal is now more practical: to embed Web3 technologies into processes, assets, and value chains designed to solve global problems that could not be solved by Web2 alone. (Web2 refers to the second era of the Internet, emphasizing user collaboration and interaction, with data centrally owned and controlled by large technology companies.)

However, in order to realize this potential, both new and established companies will first need to rethink how they approach and derive value from Web3. Many large companies are already engaged in this process. But many more companies of all shapes and sizes can and should do the same. To achieve this, their leaders need to update their understanding of Web3 in three ways: 1) Web3 must be seen as a gas pedal, not a substitute; 2) there must be a shift from generic technologies to focused, proven value use cases; and 3) ecosystem strategies must shift the focus from dominance to networked partnerships.

Gas pedals, not substitutes
This key change in the outlook for Web3, as a means of augmenting the current Web2 proposition and infrastructure, means that Web3 needs to be embedded in a company's technology stack and integrated into its business strategy, rather than focusing on the creation of unique virtual worlds like Meta's Horizon Worlds.

The Starbucks loyalty program, Odyssey, is a typical modern Web3 loyalty program embedded in existing journeys and real-world experiences.Odyssey members receive exclusive rewards such as invitations to real and virtual events through the earning of (NFTs) stamps; the stamps can also be traded on the NFT marketplace. While the target audience represents a very small portion of Starbucks' customers, it is estimated that the Beta program has generated over $1 million in revenue. When extrapolated, this means additional revenue could be in the tens of millions of dollars.

Enterprise tools are also increasingly integrating Web3 components to meet the needs of companies.Salesforce now offers smart contract templates, Web3 data models, and wallet risk scores to make it easier for companies to roll out Web3 loyalty programs.Solana Pay is a decentralized payment protocol that, through integrations with global commerce giants like Shopify, offers customers a near-zero-fee Web3-native payment services.

Audius is a decentralized music streaming platform that attracts between 7 and 8 million users per month. The platform succeeds in providing a highly integrated, user-friendly experience, including a company-run fan-hosted wallet, and Audius' CEO says its goal is not to make music lovers Web3 fanatics, but to allow fans to "reap the benefits of decentralization without the use of a wallet."

The convergence of Web3 and GenAI is also generating interest, with companies exploring how blockchain's tamper-proof ledger and decentralized digital identities can establish greater trust and verifiability for AI-generated content. web3's record of information can help to determine whether content was generated by a human or an AI. aptos Labs and Microsoft are exploring the convergence of these two technologies to Aptos Labs and Microsoft are exploring the convergence of these two technologies to determine if the training data is unbiased and if the output generated by LLM is authentic and reliable. shortly after the launch of ChatGPT, Sam Altman, co-founder and CEO of OpenAI, announced the formation of a new company, Worldcoin, to provide "proof-of-human-ness" digital identities for the AI era.

Meanwhile, artists are combining AI and Web3. Singer-songwriter Grimes has merged the two, allowing users to transform their voices into Grimes' unique vocal style. The resulting royalties are automatically distributed to both the collaborating artist and Grimes via a smart contract.The generative power of AI combined with the payment capabilities of smart contracts provides a powerful integrated solution.

Embedding Web3 technologies into the Web2 infrastructure to augment rather than replace existing propositions is critical to driving adoption. But to achieve wider adoption, use cases must also be embedded within the regulatory framework. new regulations such as MiCA (EU Markets in Crypto Assets Regulation), introduced in 2023, provide a stronger focus on wider dissemination of Web3 technologies.

Stay away from generic use cases
The value of Web3 is in focusing on specific scenarios that enhance what Web2 offers, rather than deploying it as a generic use case.The best example of a Web3 application moving from a generic to a specific technology is in the area of tokenization. When NFTs were first introduced, they were used to drive speculative value with limited functionality. Companies rushed in and created NFTs with limited consumer value, and as a result the NFT market quickly collapsed.

Now we're seeing a shift in investment towards utility-based NFT. companies like book.io are using utility-based NFT to change the ownership of digital content, such as e-books. Currently, when a reader buys an eBook, they don't own the book itself, but only the license to view the content. This means they can't resell, borrow, or give it away. In addition, authors have limited opportunities to take advantage of secondary market royalties.Advances in NFT infrastructure and decentralized storage aim to address these issues.

NFTs are also used as proof of ownership for real-world assets, including art and luxury collectibles.The BlockBar platform specializes in offering NFTs for luxury wine brands as proof of authenticity.Arianee allows brands to create digital product passports on a broader scale, connecting physical products with trackable and traceable digital identities.

Meanwhile, established firms like JPMorgan Chase are now offering tokenized deposits to develop new trading, lending and loan services through blockchain platforms like JPMorgan's Onyx. And fungible assets like stablecoins are making virtual transactions easier and cheaper. According to a recent report, more than $11 trillion in transactions were completed on the chain with stablecoin in 2022, nearly matching the volume of payments made by Visa during the same period ($11.6 trillion).

Ecosystem dynamics
The rise and fall of the Meta meta-universe vision suggests that it is counterproductive to try to exert market dominance while suppressing ecosystem dynamics. In order to realize the benefits of Web3, collaboration and competition, as well as partnership building, are critical. We expect more companies to adopt decentralized technologies to drive solutions to collective global problems in 2024. But what does this mean for CEOs looking to extract value from Web3?

For CEOs, when thinking about the future, it's important to remember that Web3 is no longer just about technology disruption, but about creating infrastructure and ecosystems by partnering with older technologies to work together to solve problems along the shared value chain. We are already seeing this assimilation across industries.

One example is Project Guardian, a collaboration between players in the global financial ecosystem, including policymakers and industry groups, to explore the feasibility of an open, interoperable network that would enable digital assets to be used for multiple use cases on a global platform. This is an important step away from closed ecosystems and isolated use cases. The London Stock Exchange Group recently announced the creation of a blockchain-based trading platform after determining that the public blockchain infrastructure is now "good enough" to build. This suggests that the nature of Web3 may be shifting from private to more open public infrastructure.

Web3's building blocks have the potential to address major challenges in the carbon market, such as carbon credit credibility, standardization and transparency across the value chain. Blockchain, smart contracts and tokenization can help provide the necessary global transaction infrastructure to create a unified, fluid carbon market. However, for this to become a reality, players in the ecosystem must work together across the value chain. startups such as KlimaDAO and Toucan are already in the marketplace - Toucan alone has tokenized more than 20 million carbon credits, generating $4 billion in carbon trading volume --And incumbents such as SAP, which is using blockchain to provide a "green token," are also joining in. However, in order to truly unlock global value, we need to see a bigger shift in mindset to embrace ecosystem collaboration and open public infrastructure.

So what now?
The reality is that Web3, including the meta-universe, is not dying, but is different. As we move from technological utopias to real-world use cases, it's important to develop a clear strategy for when and how to use Web3. Companies should consider how the building blocks of Web3 can augment their technology stack and business strategy, not replace them, and focus only on use cases that Web2 can't provide.

There are some key questions companies can ask themselves to help assess whether and how they need to use Web3. are there transparency and trust deficits that Web3 technologies like blockchain can address? Can Web3 mechanisms like tokenization unlock liquidity where traditional methods have failed? In an era of unlimited content, how can utility-based NFTs and smart contracts ensure effective digital asset ownership and reward strategies for creators and consumers?

Beyond that, company leaders should rethink how they approach ecosystem dynamics. Finding the right partners to build stronger network effects, from technology collaborators to industry peers and cross-industry stakeholders, is critical to building a strong ecosystem.