Last year Etherbridge published a Web3 mini report where we reviewed some of the most significant Web3 sectors and a few up-and-coming ones.

The year has been challenging for all markets in general, and crypto has been no exception. Internal human errors and poorly designed token mechanics resulted in a crypto credit crisis, exacerbating the market crash further. Nevertheless, the underlying technology across the blockchain stack has continued to evolve and improve, with some fundamental breakthroughs happening in scaling and other critical infrastructure.

These projects and the service they provide will form the backbone of our internet of value and will be necessary for the proliferation of a blockchain-based, internet-native economy.

NFT’s

Last year non-fungible tokens, or NFTs, were gaining traction. They came into the mainstream spotlight, with Collins Dictionary even naming “NFT” as their Word of the Year. Yet, they were often berated for their speculative nature and how they weren’t worth anything if one could just “copy-paste”. While there has been a massive flush of many projects in the space, we have seen a few rise to prominence and find a market fit. What is more exciting is that the infrastructure surrounding these tokens has exploded, paving the way forward for NFTs to be used more effectively and provide a platform for future growth. As an NFT can represent anything unique, from a title deed to medical records, they will all require robust tooling to be adopted by a global audience. While the first use cases were jpegs on the internet, they have helped build out the infrastructure necessary for blockchain to be adopted further.

Overall, NFT trading volume has reduced significantly over the year, as expected with the general market conditions.

Source: Dune Analytics (@hildobby)

At the beginning of 2022, the average weekly volume was $658 million and around 500 000 different NFTs were being sold. We currently are sitting at $75 million per week, with 100 000 being sold on average. This is far from the $3.42 billion in sales we saw at the peak of the 2021 craze.

This stat is in line with the general sentiment towards the NFT market as well; we are slowly moving away from the speculation phase and moving toward giving tokens actual utility and making them useful beyond just a picture. Whether that is access or special privileges, we are seeing the next generation of NFTs being born, and this trend will extend into 2023.

Metaverse

The Metaverse was another hot topic in 2021. Companies like Facebook rebranded to Meta to demonstrate their vision of the future and how these Virtual Reality (VR) worlds are rapidly becoming a reality. The market has cooled off in 2022, and projects have gone back into build mode, yet that hasn’t stopped well-known companies like Citi and McKinsey from speculating that the Metaverse economy could reach $13 trillion and $5 trillion by 2030, respectively.

The use cases have also expanded and now cover applications in education, healthcare, virtual advertising, social commerce, smart manufacturing, digital tourism/events and virtual communities, to name a few. Nonetheless, there are still significant limitations associated with creating a truly immersive Metaverse experience, and this mostly has to do with hardware, including internet latency and cheap, accessible VR wearables.

Weekly Metaverse sales were consistent with general market conditions in 2022.

Source: Dune Analytics (@KARTOD)

Sales of Metaverse-related tokens remained relatively constant until May. It currently sits at a few million dollars a month, and general interest is somewhat subdued. It is seen as a more speculative opportunity in the crypto industry, so this is expected. One interesting trend we have seen is the popularity of Otherdeed for Otherside. This is a Metaverse launched by Yuga Labs, the team behind Bored Ape Yacht Club and other top NFT projects in the space.

Source: Dune Analytics (@KARTOD)

It currently accounts for the vast majority of Metaverse-related sales in the sector and is rapidly building out its offering. They have significant backing to further this project and will definitely be on our 2023 radar.

We have also seen the number of events taking place in the Metaverse increasing, holding live streaming events and VR equivalent real-world conferences

Source: RLTY

These are new ways of networking and consuming media. We expect this trend to continue as more people come to use the networks for these types of benefits.

Middleware

Middleware is often an area that is forgotten as it operates quietly in the background. Middleware projects are crucial if we want to see any form of actual adoption of blockchain in the real world. They form part of the backbone of the digitally native economy, and generally, people don’t even know they are using them. The middleware sector encompasses a broad group of sectors and projects; therefore, we have selected a few that have made significant progress in 2022.

Oracles

Oracles are the way in which the real world can interact with blockchains. Blockchains cannot inherently access data outside their respective blockchain, severely limiting the number of addressable use cases. Yes, it is easy to feed information to a blockchain; however, the problem becomes significantly more complicated when you want to do it in a trustless, decentralised fashion.

In 2022 various oracle services came to market, all approaching the problem differently. Nevertheless, there is still one clear leader, Chainlink.

Number of Protocols

Chainlink and its services have gone from strength to strength in 2022. Not only have they increased the number of oracles they provide, but they have launched and further built out the capabilities of other services they offer, including Verifiable Randomness and interoperability solutions.

As it stands, Chainlink has over 1617 protocols between 15 different blockchains that leverage its service. Last year they had 1009, so on average, Chainlink has been adding 1.67 partnerships a day or a 60% increase over the whole period. The majority of the partnerships in 2021 were for DeFi protocols; this still remains true; however, we have seen a significant number of NFT projects integrate Chainlink into their services, currently making up the second largest category.

They have also focused on increasing the number of partnerships they have with traditional companies, which today include SWIFT, Google, AWS, T-Systems, AP and Swisscom.

Chainlink’s continued partnership growth has helped it maintain its crown as the top oracle service provider.

Total Value Secured

Another metric worth tracking when it comes to oracle services is the value the network secures. Total Value Secured (TVS) is the value of the smart contracts for which Chainlink is responsible for providing price feeds. This metric is important as it underpins a smart contract’s ability to maintain integrity and function effectively. The more value secured by the Chainlink Network, the greater confidence people have in the oracle’s ability to feed reliable data into their smart contracts.

At the end of 2021, Chainlink was securing $75 billion in value; as of today, it is sitting at $20 billion, a decrease of 73%. This is also in line with the general market, so it should be expected as it is closely tied to token prices.

Chainlink has had a good 2022 on all accounts and has positioned itself well going into 2023.

Decentralised Cloud

The decentralised cloud comprises two offerings, both computing power and data storage. Currently, companies like Google Could Platform, Amazon Web Services, Microsoft Azure, IBM Cloud, Oracle Cloud, and Alibaba Cloud have a complete monopoly in these markets. However, by leveraging blockchain technology, everyday people can rent out their spare digital resources and be paid for them in return and effectively challenge these incumbents.

Decentralised data storage and computational power are going to become a significant part of Web3 middleware. If an application is to be genuinely decentralised, it will need to store and compute the data and information necessary to operate in a distributed, secure and fault-tolerant way. Blockchains such as Ethereum excel at storing or replicating small amounts of data on millions of computers across the globe; however, storing or computing vast amounts of data and information on-chain can very quickly become prohibitively expensive.

Data Storage

There are two general approaches within this subsector: on-demand storage (Filecoin and Sia) and permanent storage (Arweave). Filecoin has long been the leader in the decentralised data storage market, but new protocols are trying to compete with the network.

Filecoin still has the largest capacity of any storage network, with over 15.31 exbibytes of storage available; this is up from 10 in 2021. This is the available storage on the network; it doesn’t necessarily mean that it is all being used. Currently, 375 petabytes of data are being used by clients, which is a significant increase from last year when only 34.95 was being used in total. This represents excellent uptake of the network and is mainly attributable to their latest product, Filecoin Plus.

Arweave’s approach is slightly different, but they have made progress and also represent the largest player in their specific subsector. As NFTs, the Metaverse, and other projects that need permanent storage have risen in popularity, so has the need to store them in a secure way; Arweave has been the solution for many projects and individuals.

Last year Arweave had 33.61 terabytes of data it was storing; this year, the “weave” has gone to over 110 terabytes, a 227% increase. While the economics of permanent storage are still proving themselves, Arweave has positioned itself well to capture a significant portion of the market.

Decentralised Autonomous Organisations (DAOs)

A DAO leverages blockchain and a collection of smart contracts to facilitate the mechanics of governance whereby allowing a decentralised group of participants to fund and produce community-owned goods and services collectively. Or, more simply, a DAO is an internet-native coordination structure governed by code that allows like-minded people to come together and pool their resources to achieve some common goal.

A DAO itself isn’t that different to the corporations and businesses of today. They can provide both digital and real-world-based goods or services; however, the governance structure can be significantly more decentralised and provide stakeholders with the chance to participate meaningfully in the system. A DAO uses economic incentives to align the interests of everyone within the organisation, as the rules are transparent and written in open-source software governed by mathematics and computer science.

DAOs have managed to do well in 2022, despite market conditions. At the end of 2021, DAOs had over $13 billion in their treasuries; this now sits at $9 billion between the 2288 DAOs tracked. Last year there were 58 DAOs that held more than $1 million in their treasuries; this year, it sits at around 122.

DAO membership has also increased from 1.7 million to over 5 million members and token holders. This represents the increase in the structure’s popularity in coordinating and running a protocol or business.

The diversity of DAOs has continued increasing, and we currently have a large variety servicing different niches. The below diagram should give you a good idea of the various subsectors:

Source: Messari

DAOs represent the new frontier in human coordination. They have started to find a market fit and actual use within the broader crypto ecosystem; however, regulatory uncertainty is still associated with them. Nonetheless, we still expect to see further growth of DAOs in 2023, and as DAO tooling builds out, we expect even further adoption and use.

Conclusion

2022 has been an exceedingly tough year for crypto. Nevertheless, many of the projects and their respective sectors have continued to build in the background and prepare us for the next cycle.

2023 will probably bring with it its own unique challenges; however, the technology has continued to improve and offer unique advantages over its more traditional counterparts.

Technology doesn’t often evolve on a linear path. Blockchain and the projects that make up the industry form part of a multi-decade secular trend. There will be both good and bad years, but as long as we continue building and improving the services these technologies provide, we stand in good stead.

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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments.