Is Investing In Web3 For The Entertainment Department A Good Idea?

The currency of today is culture. Investing in cryptocurrencies during their first ten years of existence was straightforward: You could purchase bitcoin, ether, XRP, ADA, or any of the thousands of more exotic alt-coins. Prices skyrocketed and then crashed.

Then, a change occurred. Since the clunky acronym “NFT” [for non-fungible token] gained popularity two years ago, cryptocurrency has permeated every nook and cranny of our culture. Sports: 1 million people used NBA Top Shot. Art: Crypto was such a force that Sotheby’s, established in 1744, started auctioning NFTs. Pop culture: Famous people like Jimmy Fallon, Madonna, and Kevin Hart switched to cartoon apes as their Twitter avatars.

Jamie Burke, CEO of the VC fund and accelerator Outlier Ventures, says, “We’re seeing this convergence of culture, finance, and technology.” “It’s no longer merely a paradigm shift in technology. It isn’t only a new financial system anymore. It represents a new method for creating, consuming, and disseminating culture.

This gives a chance for potential investors. An investment in crypto “culture” is a wager on the average person’s interests, obsessions, and passions. “The underlying technology is unimportant to the typical person. According to Magdalena Kala, the creator of the venture fund Double Down, “They care about what it can accomplish for them. Kala states, “consumer culture is always related to Web3′s expanding awareness.”

Look for the drive to discover the alpha. Jarrod Dicker, a partner at The Chernin Group (TCG) and a former vice president at The Washington Post, essentially holds it as his investment thesis. “When we consider investments, we first consider our passion before asking, “How does cryptocurrency specifically unlock this?”

He uses music as an illustration. I’m quite passionate about music, says Dicker. Would I adore running a record label? Sure. But do I possess the necessary abilities? No. Warner’ll never employ me. Dicker’s passion is only a hazy ideal in the Web2-enabled world of today. But what about Web3? He cites initiatives like Hume, a decentralized record label that enables the neighborhood (through NFT ownership) to discover and nurture musical talent.

Or perhaps you have a love for visiting museums? Dicker asks, “That might be a love of mine, but could I ever curate the Smithsonian? Absolute no. You have Web3 initiatives like Arkive or PleasrDAO, where users curate content and decide which assets to buy.

If you are a sports enthusiast? Then WAGMI United, LinksDAO, or SailGP may assist you in acquiring a soccer team, a golf course, or a racing yacht, respectively. According to Dicker, these are fascinating and, for some reason, seldom ever discussed. We invest based on that idea, and I always talk about it.

Let’s assume you accept the assumption that culture might be a wise investment. How can you make use of this? How can you specifically get exposure to this peculiar new market?

Increasing exposure In Web3

From an investor’s perspective, the beauty of the cryptocurrency market is that there are many different methods to invest. VC firms like Outlier make early-stage direct investments in projects. Burke continues, “We’ve got a specific approach of investing in the space as an accelerator. “We work with Project X, invest in them early on, and help them raise money, employ staff, create products, launch, and, hopefully, expand their user base.”

Of course, early-stage investing doesn’t require that much involvement. According to David Nage, portfolio manager at Arca, “For the way that we’re looking at the market today, early exposure – the typical equity-type of exposure – is probably the best right now.” According to Nage, the “lion’s share” of investment deals in 2021 were for SAFTs, or Simple Agreements for Future Tokens. Nage observed a switch from SAFTs to the more conventional SAFEs (Simple Agreement for Future Equity) and a warrant for future tokens once the prices fell in early 2022. (In other words, at a later time, an investor would receive several tokens in addition to a portion of equity ownership.)

If you believe Project X has great potential, you can acquire X tokens like you would buy Tesla shares. If you’re unwilling or unable to fund a starting team directly? Then, you can increase your exposure with tokens.

Alternatively, you could just buy NFTs. One of the most active collectors in the area, going by the alias “Whale Shark,” who has acquired over 400,000 NFTs, has followed this strategy. According to Whale Shark via email, each investment “class” has its own benefits and drawbacks. Although stock offers the best growth possibilities, tokens have greater liquidity.

Don’t overlook the underlying blockchain protocols, however, as they may be the most straightforward approach to obtaining exposure. Given that many of these projects use the Ethereum-based Polygon platform, Kala asks, “If you believe in these business models, why not just buy a boatload of Ethereum.” Alternatively, you might place an “index bet” by dispersing your funds among several platforms, including Ethereum, Flow, Solana, and others.

Nage concurs. By comparison, he points out that the TCP/IP protocol served as the primary hub on which SMTP and HTML were developed for the early 1990s internet. It would be good to own a piece of TCP/IP if you were an astute investor in the 1990s who was optimistic about the future of the internet. But that was impossible. There were no such financial instruments. Today, though? As Nage puts it, “you have the power to invest in the protocols where all of these things will be developed” if you believe in the potential of Web3 culture.

The term “culture” is incredibly nebulous and difficult to define. Many types of culture exist, including archaeology, dating, religion, cinema, gastronomy, poetry, and art. Web3 has the potential to upend each of these areas. As a result, we have chosen a handful of the use cases that professional crypto investors find particularly intriguing rather than attempting to meticulously (and futilely) record every conceivable investment opportunity.

There will be more. Some are present at the moment. Others may not become popular for three to five years, making the present the ideal time to enter.

Web3 Use Cases That Are Already Big Time

Gaming

Nage enjoys examining broader macro trends to identify a strong investment thesis, and gaming is significant. According to Nage, there are around 3 billion gamers worldwide. He adds that since the Pong era, “gaming has expanded through recessions, depressions, and wars.”

What does this mean for Web3? Because “people were able to utilize and play a game and extrapolate value for the first time instead of being trapped into the circular economy that larger firms possess,” Nage attentively monitored the rapid expansion of Axie Infinity. Arca now tracks 1,000 games under development, with gaming projects making up 70% of its portfolio. The following decline of Axie was acknowledged by Nage, who added that “the principle behind it is still there” despite this, emphasizing the risk involved in all these enterprises.

Dicker is also optimistic about gaming. He claims that crypto “enables incredibly unique things that could help evolve experiences that people already appreciate.” He uses chess as an illustration. He claims that chess is a centuries-old game, but play-to-earn chess games, like Immortal Game, give the traditional game a fresh new lease on life. The user interface and experience are identical to chess’s, but crypto-infused “microgames” are added for more strategic depth. Other examples include virtual sports (like Sorare) and virtual horse racing (Zed Run). According to Dicker, people enjoy horse racing, but purchasing a horse and traveling to Belmont are prohibitively expensive.

Also Read: Top 10 International Companies Investing In Web 3.0

ENS (Ethereum Name Service) 

For Whale Shark, it makes sense to spend money on items with practical uses—things that people will someday require. He likes ENS because of this. Because it’s impossible to remember one’s ETH address and because the ETH mainnet is quickly becoming an essential component of the ecosystem, Whale Shark predicts that everyone will soon require an ENS domain for convenience’s sake.

Creator economies

What are the intriguing and original methods that we may broaden the sources of income for artists and the channels of contact with fans?” Kala wonders. The projects that make it possible for creators to monetize their labors in film, music, art, and entertainment could succeed. This has already taken place. For instance, The Kings of Leon produced an album as an NFT. Kala mentions pioneering decentralized content initiatives like Tally Labs, which collaborated on a book with Neil Strauss and the Bored Ape Yacht Club members.

Driving human behavior using Web3

People are funny, declares Kala. “We are aware of what we ought to be doing, but we are not.” We are aware that exercise is recommended. We are aware that we should put money aside. Healthy eating ingests water.

However, we frequently fall short in all of these areas, primarily because our short-term impulses (pleasure-seeking) are not in line with our long-term goals (health). What if Web3 were to magically align our short- and long-term incentives?

Web3 applications like Stepn, where you must purchase an NFT to participate and are then compensated for how many steps you take in the real world, are built on this principle. As this would be a “Web3 dopamine shot to drive human behavior,” Kala can envision projects like this becoming widely adopted (giving a tasty ROI).

Use cases around the corner

Photographic NFT

Whale Shark asserts that because photography is a sector “ready for disruption,” it may represent the next wave of NFT assets. The majority of online content we consume, whether on Instagram or other social media platforms, is photographic, according to his thesis, which is supported by the fact that more photographers are now digital natives.

Brand loyalty programs using NFTs

Dicker declares, “I do adore this idea of free-to-own. It resembles a frequent flyer program in Web3 form. He means that a corporation leaves a free NFT in a customer’s wallet, and over time, NFT can unlock particular advantages. According to Dicker, the wallet’s future potential will surpass that of email since it will allow for a “tighter relationship” between a company and its customers.

Web3 gaming on mobile

Since you typically needed to connect to a wallet, the early phase of Web3 gaming was almost exclusively concentrated on laptops and desktops. But only a small portion of the world’s gamers was affected. According to Nage, “50% to 70%” of the 3 billion gamers worldwide play on their phones. Nage claims that over the past six months, designers have been concentrating on mobile as a delivery method for Web 3. He forecasts that mobile gaming will be “extremely important in the next year or two.”

Security

Nage believes that the next bull run won’t start until new consumers are widely accepted. This adoption, in turn, won’t occur unless the user experience (which will make it “frictionless”) and security is significantly improved. According to Nage, an approach to gain exposure is through security-focused projects like OpenZeppelin (which performs code audits) and Forta (which conducts real-time threat assessments).

Zero-knowledge and self-government

Nowadays, most of us are more worried about safeguarding our online privacy, which is why “zero-knowledge proofs” (identification proof without revealing data) have such exciting potential. And that potential gain can be greater than you imagine. Burke explains, “It’s from an institutional standpoint; it’s not from a consumer perspective. Because “everyone can see what everyone else is doing, and everyone can watch everyone else’s trades, on-chain,” he says that recent crashes in decentralized finance (DeFi), which “apparently erupted out of nowhere,” truly occurred.

Burke believes that if you’re an institution trying to trade and take positions, you have a “great vulnerability.” The reality is that those with billions who want to invest in space don’t like that, he admits, even if many people view complete transparency as a virtue. He compares this financial openness to “Wal-Mart having their entire supply chain online” in revealing weaknesses that others might take advantage of. Zero-knowledge privacy techniques, according to Burke, will likely be used as a remedy, “motivated by institutional demand, to basically hide portions of their trading behavior.”

The upcoming (three to five years out)

Naturally, it is difficult to determine what should be considered “just around the corner” and what should be considered “the Future” because no one possesses a crystal ball. Any of these could fall within the first group and vice versa.

“Meta-Fi”

Burke explains, “Meta-Fi is a significant motif for us. It incorporates the new DeFi tools into the NFT and metaverse worlds. “If culture can be monetized and converted into an asset, and that value can be borrowed and lent against, then all of a sudden you have a tremendous number of people whose current wealth is not acknowledged by the existing financial system,” said the author David Harvey.

Here’s a straightforward illustration: If you have an NFT, you can either fractionalize it and sell it to various customers in smaller pieces or use it as collateral to obtain a loan. A more provoking illustration: Consider a professional player playing Fortnite for 16 hours daily. She has fully upgraded her armor and weapons, among the most valued in the game. But what can you do with that besides earning bragging rights and uploading content to Twitch?

Players in a decentralized game might convert those assets to real-world purchasing power using Meta-Fi. This is an investment opportunity because, like all of these categories and use cases, the specifics are still very much up in the air. Burke claims Outlier spreads its investments among several early-stage startups for any category since “we can’t anticipate the winner.” As Burke puts it, good luck telling a bank, “I’m a millionaire in Fortnite.”

Infrastructure for NFT

Burke asserts that despite the enormous potential of NFTs, their use in the metaverse as it exists today is still severely constrained. How much is the actual volume being purchased in Decentraland? Not a lot. He claims that it isn’t intended to be a shopping experience. Because the metaverse is “designed to be a communal place rather than a high-end retail experience,” its user interface frequently “degrades the object people are shopping for.” In other words, expensive jewelry could appear to be pixelated junk.

Someone will ultimately resolve this issue. Burke asserts that “increased reach and dissemination of NFTs” will “generate a massive volume of consumers.” That may be a more inventive approach to displaying NFTs. Perhaps the integration into Web2 is more seamless. Burke is now interested in “startups coming to market that update or enhance how you experience an NFT,” but the precise how and what are still up in the air.

Markets for NFT in the vertical

As Kala puts it, we’re still in the “eBay age” of NFT marketplaces. The setting is primitive and early. She asserts that Web3 might experience a similar trend to e-commerce, with “marketplaces for fashion, marketplaces for beauty.” “I don’t see why you wouldn’t have more vertical categories over time as you get more adoption,” she says. She imagines a music center with music material, a community forum for music, a music NFT market, and even a digital concert venue. Kala states, “There might be a platform that meets your demands and enables you to participate in the complete ecosystem of music NFTs.”

Interconnected metaverses

The idea of an open metaverse is something Dicker is enthusiastic about for the next three to five years. He claims that other “closed” platforms, like Facebook and The Sandbox, are being developed, but adds, “I love the concept that these mechanics start to become more interoperable.” It will require new infrastructure and initiatives to develop the tools necessary to make various worlds interoperable if this does truly occur. Dicker sees an opportunity in infrastructure initiatives like Altered State Machine.

Commerce in D

E-commerce? Burke predicts the ultimate development of “D Commerce,” or decentralized commerce, which would virtually reproduce everything that Amazon does, from payment to fulfillment, without relying on a centralized company.

Increasing adoption of digital ownership

This general tendency might take over in the next five years rather than a particular culture segment. All of the concepts above are supported by this tendency.

According to Kala, the most intriguing aspect of Web3 is that it fosters an ownership mindset in users. She makes a straightforward but persuasive case that people prefer to possess things. They enjoy having their own homes, automobiles, and investment portfolios. Web3 should be significant to you if you think that ownership matters.

Whale Shark concurs, and in the end, he uses the word “inevitability” to sum up investments in the crypto culture. “Life is going digital,” he claims as justification. And suppose it’s true that everything is turning digital. In that case, he asserts that digital assets cannot be given the same level of ownership, scarcity management, or provenance “without blockchains like Ethereum and Flow.” In his opinion, the little bear and bull cycles are irrelevant in the larger framework of life’s digitalization.