With the rise of blockchain technology, web3 and decentralized apps built on blockchain networks are gaining more attention. As an emerging trend, investing in web3 apps provides exciting opportunities but also comes with risks. This article analyzes the landscape of web3 apps and the pros and cons of investing in them from the perspective of investors.
The exponential growth of web3 apps brings new investment opportunities
The number of web3 apps has increased exponentially in recent years. According to Apptopia, there was an 88% increase in downloadable web3 apps in 2022 compared to 2021. The growing number indicates the dynamism of the web3 app ecosystem. For investors, the burgeoning field presents lucrative prospects to fund promising projects early on and enjoy multiplied returns when they succeed. However, identifying the right projects to invest in requires research on factors like real-world applicability, token economics, community engagement, and team credentials.
web3 apps aim to decentralize industries dominated by centralized platforms
Many web3 apps strive to decentralize industries where power is concentrated in a few big players. For example, Stepn aims to decentralize the fitness tracking sector dominated by centralized apps like Keep. APPICS wants to decentralize social media ruled by the likes of Instagram. Uniswap intends to decentralize crypto exchanges controlled by companies like Coinbase. The decentralization vision gives web3 apps an advantage in targeting users dissatisfied with centralized platforms. If executed properly, they can gain market share from legacy players rapidly.
web3 apps incentivize user participation through token rewards
Many web3 apps motivate users to engage through token rewards. For instance, Stepn gives out GST and GMT tokens to users for walking and running daily. Livepeer rewards users with LPT tokens for contributing bandwidth to transcode videos. Platform tokens create a positive feedback loop where active user participation enhances the app ecosystem, which in turn increases the token value and attracts more users. For investors, apps with well-designed token economics tend to have sustainable growth.
Lack of mainstream adoption remains a major risk
While the web3 app space is teeming with activities, mainstream adoption still lags. Most apps have limited DAUs so far compared to their web2 counterparts. Taking crypto wallets for example, MetaMask has around 30 million MAUs, while Alipay has over 1 billion users. The tech barrier and complex UX of web3 apps remain obstacles for average users. Investors need to account for adoption risks carefully when assessing web3 app projects.
Regulatory uncertainty creates risks for web3 apps
Web3 apps based on blockchain need to deal with regulatory uncertainty in many countries. Restrictive policies can threaten the viability of app tokens that are critical for user incentives. Apps associated with certain aspects of crypto such as trading may face existential risks if governments impose an outright ban. Investors should monitor the regulatory environment closely and favor apps founded in crypto-friendly countries.
Investing in the nascent web3 app ecosystem requires thorough evaluation of opportunities and risks. With prudent strategies, web3 apps can offer investors exposure to the burgeoning decentralized internet. But expectations need to be set realistically given the early stage of adoption.