Webjournal series 0: the new paradigm opens a new stage of the Internet

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Source:Zhongjin dianjing

Author: Xiao Yanyan, Bai Yang, Qian Kai

Web3. 0 definition: start with the innovation of back-end production relations.Web3. 0 is a new Internet iteration direction based on blockchain technology, which combines the concepts of decentralization and token economics, and is intended to solve web2 0 brings ecological imbalance, opaque development and other problems. Compared with front-end innovations such as AR / VR, it comes from the innovation of back-end production relations. Currently Web3 0 is in the early stage of development, but it has strong potential. In 2021, the financing amount of global blockchain start-ups reached US $25.2 billion, a year-on-year increase of more than 700%. We think Web3 0 will be integrated with AR / VR, AI and other technologies to open an innovative stage.

Web3. 0 already has a systematic infrastructure.Web3. The core features of 0 ecology are relative Decentralization (based on blockchain) and economic incentive system (based on token mechanism). For the former, there are public chains such as Ethereum, solona and FTX in overseas markets, and alliance chains such as Chang'an chain in China. In addition, smart contract, Dao and other mechanisms are expected to become Web3 Implementation and cooperation mechanism in the 0 era. Finally, on the one hand, token economic system can become a representative of Web3 0 is the basic unit of various ecological rights. On the other hand, token economic system is also the core mechanism to encourage ecological participants, which is expected to become Web3 0 develop self drive.

Web3. The 0 app is still in its infancy.The development of defi is relatively mature and can realize the functions of trading, lending and financing. Among them, the exchange has become the "traffic entrance" of the industry, including centralized exchanges such as binance and decentralized exchanges such as uniswap. Secondly, the NFT market has developed rapidly in recent 1-2 years. In February this year, the total market value of NFT reached US $18 billion. With the characteristics of p2e, gamefi has popular applications such as axie infinity and stepn. Gamefi is expected to become the next outlet of applications. Finally, socialfi, advertising and search are still in the exploratory stage.


Web3. 0 VS Web2. 0, which is expected to coexist for a long time.Web2. 0 takes efficiency first, Web3 0 emphasizes fairness. We believe that these two focuses will become important standards for users to choose applications in the future. Considering Web3 Stage 0 is still in the early stage of development, and we expect web2 0 and Web3 0 or coexist for a long time. In addition, we believe that the direction of open, transparent and fairer distribution mechanism is also expected to become web2 0 is the key direction for the improvement of large factories. Finally, actively layout Web3 0 era has also become an option for Internet manufacturers at home and abroad.

Face Web3 0 potential risks.Web3. 0 is in the early stage of development, emphasizes decentralization and its own economic system, which makes there are many risks at present. At present, China's government is relatively cautious about the anonymous token chain and other mechanisms, but it is relatively cautious about the digital collection chain. In addition, the US government is also implementing a bill to regulate different asset classifications, which is expected to strengthen supervision on investor protection in the future. Other governments focus more on anti money laundering and anti-terrorism financing risks for defensive supervision. In addition, some countries have introduced license systems for encryption enterprises (such as Japan, South Korea, Singapore, etc.).


The tightening of monetary policy brings the risk of market fluctuation; Anonymity mechanism brings money laundering, tax evasion and other risks; The token mechanism may hurt investors and other risks; Risks such as loopholes in technology and mechanism settings.


Face destructive innovation with an open mind

Although this report attempts to analyze web 3 The context of the 0 era, but what we need to explain in advance is that maybe we are interested in the real Web3 0 era "know nothing". In other words, standing in front of all disruptive innovations, our most correct cognition may beThe future is unpredictable。 Therefore, the definition in this report can be understood as "what may be", while the prediction can be understood as "maybe a development possibility". In fact, in the face of such a long-term and disruptive innovation opportunity, we prefer to find true knowledge from practice.

Things change and stars change several times in autumn -- Web3 0 was conceived

Web3. 0 definition: Innovation of Internet back-end production relations

Web3. 0 now has a variety of definitions and elements, including blockchain, metauniverse, VR / AR, etc. the core of this article is Web3 in a narrow sense 0 According to Wikipedia,Web3. 0 is a new Internet iteration direction based on blockchain technology, which combines the concepts of decentralization and token economics.Web3. 0 was created by Gavin wood, co-founder of Ethereum, in 2014. With the development of blockchain, digital assets (NFT) and other industries, Web3 0 has also received extensive attention since then.

Web3. 0 is an innovation in the production relations of the "back end", while the technical attribute of the "decentralization" of the meta universe is more inclined to the "front end" that directly interacts with consumers:Metauniverse is an interconnected and experiential 3D virtual world in which people anywhere can socialize and entertain in real time, and form an internet economic system that spans the digital and physical world and is permanent and owned by users. And Web3 0 Internet is based on blockchain technology and adopts the concept of decentralization. In the future, it may be integrated with metauniverse and other technologies.

Web3. 0 development is bound to integrate the development of other technologies.Of course, the innovation of production relations will inevitably bring the innovation of productivity. Limited by the methodology of our research, this paper is more from Web3 From the perspective of 0 definition, analyze the development logic behind it and the potential development direction in the future. However, the development of the world has never been one-way, and many main lines of development have always been intertwined, which is the difficulty for us to predict the future. And Web3 The development of 0 is likely to face the span of the development of the Internet industry in the next few decades. Its development process must be coupled with the development of many new technologies (such as AI, metauniverse, life science, robot, etc.), so as to form a development result that exceeds our prediction.

Chart: a variety of transformational scientific and technological progress are integrated to achieve a spiral rise

Source: Ark, research department of CICC

From web1 0 to Web3 0: a long separation makes a long separation

The general trend of the world is to divide and divide for a long time. The change of the Internet is accompanied by technological progress and the change of information production relations, and the disadvantages of the previous generation are often the driving force of the innovation of the later generation.Web1. In the era of 0, PC Internet has just begun to develop. Internet users are mainly users with distinct preferences and sufficient desire to express, and different users choose different consumption and expression scenes to form a relatively scattered Internet Ecology; In the era of 2.0, the mobile Internet took over and the Internet became a national application, while super applications focusing on super scenes such as social networking, search and e-commerce began to become the absolute main body of the market and have great bargaining power in the upstream and downstream. In particular, user produced content (UGC) and small and medium-sized businesses have entered the e-commerce platform, further enriching the ecosystem of the super platform. However, in the long run, the platform's constant pursuit of profitability began to arouse the dissatisfaction of some creators, businesses and users, and began to pursue the reconstruction of production relations. At this time, Web3 0 was born, which is intended to give more voice to non platform ecological participants and build a more equal ecology.

Chart: web1 0 to Web3 Change of 0

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

Chart: Web evolution timeline and representative companies

Source: rhythm, CICC Research Department

Web3. Multidimensional nature of 0: decentralization and economic system

Current Web3 0 seems to be an abstract concept, and it is difficult for us to give a strict and comprehensive definition. However, according to grayscale on Web3 From the perspective of web0.0 and Web3.0, we can define the form and control of media 0 and web1 0 and web2 0 era, in order to present its "panorama" more finely.

► interact:Web1. 0 is mainly "read", web2 0 users have a stronger sense of participation, "read + write", Web3 0 is "read + Write + own", which is user-centered and emphasizes that all participants in the ecosystem have corresponding rights (through the token system). In order to reliably verify identity without Internet platform account, Web3 0 using blockchain distributed ledger Technology (tamper proof trusted computing paradigm), trust can be transferred end-to-end among issuers, licensees and verifiers.

► medium:Web3. 0 is expected to combine new technologies such as meta universe, break through the limitations of time and space, and use stronger computing power to upgrade the interactive content of 2.0 to a virtual economy with a complete world outlook, including tokens, real rights, etc. If you put most web2 0's application metaphor becomes an "entertainment paradise", then Web3 The application of 0 will be more like a "complete economy". On the one hand, it can cover people's social and entertainment needs; On the other hand, it can rely on the economy to obtain corresponding income, and even become the job itself.

► organization:Web3. The organization form of 0 replaces the platform in the era of 2.0 with network. The typical organizational form is Dao - decentralized autonomous organization, which encodes the organization's management and operation rules on the blockchain in the form of smart contract, so as to operate independently without centralized control or third-party intervention. Dao can be understood as a highly autonomous community. Its production incentive source is token. The decision-making within the organization is based on the voting of members within the organization under the consensus mechanism, and the voting right is based on token.

► infrastructure:Blockchain is Web3 0 is one of the lowest infrastructure. Blockchain makes Web3 0 network has the characteristics of decentralization, openness, independence and security. In addition, Web3 0 is also compatible with web1 0 and web2 0's infrastructure.

► control:Web 3.0 is more similar to the decentralized infrastructure of Web 1.0. Based on blockchain and token economic system, its application architecture and governance structure are decentralized. In addition, due to Web3 0 core application is open source, and the threshold for copying and opening up new applications in the system is low, which may be difficult to form web2 The super platform in the era of 0 has formed a monopoly on the industry.

Chart: web1 0、Web2. 0、Web3. Property comparison of 0

Source: grayscale, CICC Research Department

Web3. 0 is at an early stage of development, but the momentum is good

Web3. 0 has a strong development momentum at present, but the development stage is early.Web3. 0 received a lot of financing when the concept of metauniverse gained attention in 2021. According to CB insights, the financing amount of global blockchain start-ups reached US $25.2 billion in 2021, a year-on-year increase of more than 700%. Strong capital flow means strong talent flow, and Web3 0 users are growing rapidly, so Web3 0 has the growth power of supply side and demand side at the same time. However, compared with the big factories in the mature 2.0 era, Web3 0 is still small in terms of user size and market value, and belongs to the early stage of growth: currently Web3.0 The largest number of users in 0 is digital currency users, about 300 million, which is still far from Facebook's Mau (2.9 billion); Followed by defi and NFT, both in the order of millions of people.

Chart: financing amount of global blockchain start-ups

Source: CB insights, CICC Research Department

Chart: web2 0、Web3. 0. Meta, game market value

Source: statista, research department of CICC; Note: the deadline is October 31, 2021

Chart: number of global users in different fields (millions)

Source: CNBC, coindesk, triplea, meta, expanding topics, dune, research department of CICC note: the deadline is December 31, 2021

Web3. 0 infrastructure: tall buildings rise from the ground

Infrastructure is a necessary condition for the prosperity and development of an industry, just as pc internet starts with the popularization of windows system and mobile Internet starts with the popularization of intelligent terminals such as iPhone and operating systems such as IOS and Android 0 development is also inseparable from the establishment and popularization of infrastructure. In this chapter, we will explain the infrastructure such as blockchain (including public chain), smart contract, Oracle, Dao and token. We talked about web 3 0's "infrastructure" may be a more puzzling concept than the Internet 20 years ago. It has neither one-to-one correspondence with the real physical world (similar to e-commerce in retail, takeout in catering, etc.), nor processor, binary and other concepts we are already familiar with. To some extent, Web3 0 has no physical foundation. Its infrastructure is the interaction and cooperation between people, even the society itself.

Next, we will introduceBlockchain, Dao, smart contract, Oracle, token and other concepts seem to be in the early stage of development due to the lack of applications, but as a new order, the framework is clear, which will be the basis for the evolution of application ecology in the future.In conclusion, we believe that Web3 0's infrastructure public chain, Dao and token mechanism have been preliminarily systematized, but they are far from mature. On the one hand, relevant facilities still exist, such as low efficiency (such as transaction efficiency), on the other hand, the underlying mechanism setting (such as Dao decision-making mechanism) is still in the preliminary stage, and the industry development still needs the joint participation of professionals in different fields (not just technical talents), Support the industry to embark on the path of sustainable development.

Blockchain: Web3 0, and the public chain is booming

Compared with traditional networks, the core features of blockchain are decentralization and security.Chain of blocks or blockchain is a chain composed of blocks connected together. Each block holds certain information and is connected according to their respective chronological order. Each block contains the hash value of the previous block, so as to ensure the accuracy of the connection. The whole chain is stored in all nodes, and the server in the system provides storage space and computing support for the whole blockchain system. Moreover, any network node on the blockchain stores the same data. Any node needs more than half of the nodes to confirm and agree to file modifications (such as transactions). Once the information changes, other people on the chain will know. Therefore, it is extremely difficult to tamper with the information in the blockchain. Theoretically, the more nodes, the higher the degree of decentralization.

The design of blockchain based on cryptography provides a new social relationship——In a stranger society, because the interaction between people is recorded in an unchangeable public account book, strangers can also cooperate on the condition of zero trust, rather than fall into the game of prisoner's dilemma.

Chart: connection mode of blocks in the blockchain (each block contains the hash value of the previous block)

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

Web3. 0 "Impossible Triangle": Decentralization (openness and transparency), safety and efficiency.Just like the "Impossible Triangle" of monetary policy, Web3.0 based on blockchain 0 also has the "Impossible Triangle" of decentralization, security and efficiency. Traditionally, any system should have enough security, and web 3 0 also emphasizes the characteristics of decentralization. Therefore, the problem of its low efficiency has become prominent - efficiency refers to the number of transactions processed per second (TPS). This is also the main reason for the low performance of blockchain - decentralization leads to the agreement of each transaction on all nodes. Therefore, we can only find another way to solve the problem of low efficiency, such as off chain (contract / decision-making), side chain (side chain), etc. However, the more complex the mechanism is, the easier it is to bring potential security vulnerabilities due to the characteristics of open source, which will lead to hacker attacks. Mainstream blockchain bitcoin, Ethereum and EOS have made certain compromises on a feature of the "Impossible Triangle".

Chart: Impossible Triangle of main chain

Source: Electronics enthusiast, research department of CICC

Public blockchain: platform base, reducing the threshold of application development

Blockchain can be divided into public chain and private chain.Public chain refers to a consensus blockchain in which anyone has the right to read, send and obtain effective confirmation. Therefore, public chain is usually considered as "completely decentralized". It can access the network anonymously without registration and authorization, and has the characteristics of neutrality, openness and tamper free. The earliest public chain is bitcoin (using POW consensus mechanism). In addition, well-known public chain projects include Ethereum (POW, which will be later changed to POS), binance (POA), Solana (POS + POH), FTX (POS). The public chain will generally encourage participants to compete for bookkeeping through the token of the project itself to ensure the security of data. In addition to the public chain, there are also private chains that need to be verified, including alliance chains with multiple power centers.

The role of the public chain is to provide a platform for applications and reduce the threshold of application development.Not all applications can or need to build a blockchain by themselves (there must be a sufficient number of nodes to ensure security), while the public chain is similar to a platform product, which supports anyone to establish and use decentralized applications running through blockchain technology in the platform, allows users to create complex operations according to their own wishes, and provides an underlying template for the development of decentralized applications. Due to the differences in performance design, consensus mechanism and marketing strategy between different public chains, different applications mainly consider the transaction rate, transaction efficiency (such as TPS), convenience (such as cross chain agreement), ecological maturity, etc.

Chart: comparison of well-known public chains

Source: MESARI, blockchair, official website of the company, CSDN, research department of CICC; Note: TPS is the data on April 29, 2022

Ethereum: pioneer of "decentralized application" era

EthereumIt is an open-source public blockchain platform with smart contract function. It provides a decentralized Ethereum virtual machine to process point-to-point contracts through the dedicated cryptocurrency ether (ETH). Ether coin (ETH) is the cryptocurrency with the second highest market value, second only to bitcoin.

Ethereum is the cradle of all kinds of application incubation.Ethereum originates from the disadvantage that it is unable to build advanced applications on the bitcoin main chain. Therefore, its birth date is designed to solve the difficulty of decentralized application development. At present, the ecology of Ethereum is one of the fastest growing public chain ecology.

Chart: Ethereum application ecology map

Source: Ethereum, research department of CICC

Ethereum 2.0 may bring significant changes.At present, Ethereum and bitcoin adopt the same POW consensus mechanism. Although POW is relatively reliable in decentralization and security, it has great problems in efficiency (involving high transaction fees), energy saving (excessive energy consumption and non environmental protection) and scalability. Therefore, Ethereum 2.0 has several changes: 1 Switch from POW to POS consensus mechanism (allow verifiers to verify through pledge governance token); 2. Partition the database horizontally; 3. Introduce ewasm to replace EVM (allow developers to program in C + +, rust and other simple languages), so as to reduce gas cost, improve network throughput (up to 2000 +), reduce hardware requirements, expand Ethereum ecosystem and reduce carbon footprint.

Chang'an chain: Alliance chain from China

Changan chain · chainmakerIt is an open-source underlying software platform for the new generation of blockchain. It is essentially an alliance chain (without tokens, which is inferior to the public chain in openness and transparency). It includes the core framework, component library and tool set of blockchain. It is jointly developed by famous universities and enterprises such as Beijing microchip Research Institute, Tsinghua University, Beijing University of Aeronautics and Astronautics, Tencent, Baidu and JD. Compared with other public chains, the alliance chain realizes high-speed transactions due to the limited number of nodes, but it also abandons the characteristics of complete Decentralization (not fully open) to a certain extent. In addition, like the public chain, Chang'an chain has a consensus voting mechanism, but it does not adopt the pow or POS mechanism of the traditional public chain, nor does it have its own token. Instead, it adopts four consensus types: Solo, raft, tbft and hotstuff (different consensus is used according to different scenarios and the number and scale of participating nodes).

Chart: Chang'an chain ecosystem

Source: cctv13( https://chainmaker.org.cn/ ), research department of CICC

Smart contract: code based execution link

How to reach an agreement when a group of people who don't know each other are together?The traditional model reached an agreement through intermediary platform matching and guarantee. And Web3 In the 0 era, we can use the algorithm based smart contract, namely smart contract.

Smart contract is a program that executes code on the blockchain under specific conditions.Its essence is the collection of a series of codes (with the characteristics of automation, irreversibility, openness and transparency of codes, etc.), and all parties permit and maintain its operation in the form of digital signing contracts, which are used to automatically complete some specific functions (such as remittance, trading of virtual NFT goods, etc.). The potential image metaphor of smart contract can be a vending machine. It is more like a "program black box" that performs certain functions. Users scan the code to pay, select goods, and then take away the goods to complete the purchase.

► advantages:Compared with the traditional intermediary platform, smart contract can significantly reduce the cost of reaching an agreement and operation, and allow the blockchain to conduct trusted transactions without intermediary. To some extent, it is possible to replace lawyers, brokers and other professions.

► disadvantages:The security still needs to be continuously strengthened. Its function is limited to the code (there may be errors in the code itself, leading to being attacked by hackers), that is, the person who writes the code. A typical example is the attack of the Dao - hackers found loopholes in the code in Ethereum smart contract and stole a large amount of eth. Finally, Ethereum can only use hard bifurcation to try its best to protect user assets.

Chart: smart contract can be compared to a vending machine

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

Oracle: the "bridge" of data on and off the chain.Oracle is a middleware that provides real-world data services for blockchain projects. Because smart contracts often face the problem of combining offline and online data, Oracle is the "bridge", in which the "tourists" include software, hardware, input, output and other equipment and code. A typical case is the chainlink project, which creates a rich data environment for defi in the decentralized mode. By aggregating multiple off chain market data sources, the core solves the problem of Oracle's own trust mechanism.

Dao (decentralized autonomous organizations): decentralized organization form

Dao is an organizational form of decentralized organization, which corresponds to web2 The essence of the company in the 0 era is the innovation of the organizational form of the company and the government.Compared with traditional companies, Dao first solves the traditional difficulty of "agent dilemma". Dao does not have an agent. It will hand over the execution to smart contract and give the governance right to shareholders through the direct voting mechanism (such as the protocol that determines its company's decision-making mechanism). At the same time, Dao is also an innovation of the traditional form of corporate management - it integrates all ecological participants into a new organization based on professional division of labor, code, consensus mechanism and other methods to undertake the original corporate functions. Typical cases are cultdao. Finally, under the epidemic trend, "telecommuting" is becoming an irreversible trend, and Dao is expected to develop in coordination with the "telecommuting" trend.

Chart: Dao is a subversion of the traditional "top-down" organizational structure

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

In Dao communities, decision-making mechanisms are usually divided into on chain and off chain.Smart contract can only execute existing code, and Dao needs to be continuously updated. Behind this, a set of decision-making mechanism is needed to continuously update the operation rules of Dao. Decision making on the chain refers to the proposal put forward by members and voted by the community. According to the nature of blockchain, in theory, decision-making on the chain is the only way. However, the weakness is that the efficiency is too low (it needs the consent of most nodes of the blockchain). At the same time, because the voting right is in the hands of more members of token, it is easy to lead to centralization (the thing itself is decentralized, but the share held by token leads to centralization). For the problem of low efficiency in the chain, sometimes members will make decisions off the chain - after fully discussing the proposal on other social platforms, but the disadvantage is that the discussion itself can also be guided by people around the interests.As a complete organizational form, Dao has corresponding fiscal and monetary policies.Fiscal policy is usually related to the total supply of tokens, while monetary policy is usually linked to transaction costs, which are usually determined by the main chain TPS.

Dao is still in the exploratory stage and has many problems.The first is the security issue. The case is the Dao. In 2016, it established a decentralized quantitative fund based on Ethereum, and initially issued $150 million to raise funds. However, due to code vulnerabilities, the Dao's community members were stolen eth worth $50 million, which ended in Ethereum's forced hard bifurcation to minimize user losses. This also shows the primary development stage (immature stage) of Dao, an ideal governance structure. The second is the lack of corresponding talents. The mechanism design behind Dao needs relevant professional knowledge such as economics, sociology and politics. At present, the main participants are still dominated by technical background, resulting in many imperfections in mechanism design.

Chart: on chain or off chain decision-making mechanism

Source: shermin voshmgir, token economy: how the # Web3 inventions the Internet (2020), research department of CICC

Chart: Dao Finance & amp; monetary policy

Source: shermin voshmgir, token economy: how the # Web3 inventions the Internet (2020), research department of CICC

Token: Web3 0's atomic base unit

Token is the basic unit of blockchain equity carrier.The mechanism of blockchain is to record the interaction between people in a tamper proof public account book, but bookkeeping costs. In order to motivate, bookkeepers can get tokens as rewards. Tokens are the basic unit of blockchain. Taking bitcoin as an example, a token represents an entry in blockchain, which can only be accessed by holding the wallet private key. Bitcoin's mining refers to that miners are given a certain reward (i.e. token, bitcoin) for the computing power consumed through mining machine operation, which is the consensus mechanism of pow. From a technical point of view, token attributes can be classified into native tokens (such as ETH) and derived tokens (such as erc-20). From the perspective of separability, tokens can be divided into separable (such as bitcoin) and non separable (NFT).

Token is a symbol of ownership, which can represent assets, power, etc.Among them, asset tokens can be divided into securities tokens, collective ownership tokens and tokens representing art collections (such as NFT).

It can be said that a good system is not based on the test of human nature, but to find the unity of system and interests. Token and public chain are inseparable. Without the chain, token will not be derived. Without token, no one will keep accounts, and the chain cannot establish trust.

Chart: overview of asset token

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

In addition to representing assets, the token system itself can be used to achieve some purpose driven purposes, such as motivating users.Behind the purpose driven token is the design and construction of a complete set of incentive system. It is a comprehensive problem of economics, mathematics, sociology and other disciplines, which is similar to the design of social governance system. Similar to the decision-making mechanism of Dao, the mechanism design of incentive token is still in the primary stage, and there are many imperfections.

Potential risks of token incentive.The token incentive mechanism is Web3 0 is an important part of the application. However, its anonymous attribute and attributes similar to crowdfunding also bring potential risks such as excessive speculation and money laundering. Therefore, how to effectively supervise the token issuance mechanism has become the primary problem faced by regulators all over the world. At present, know your customer (KYC), that is, the real name of trading accounts and anti money laundering regulations have basically become the bottom line of regulatory normalization. Relatively speaking, Chinese regulators choose to prohibit the design of token token token mechanism, and its starting point is to prevent excessive speculation and protect ordinary investors and users.

Web3. 0 application prospect: boundless scenery is new

Web3. The breaking of 0 depends on rich applications.As mentioned earlier, Web3 0 infrastructure has been relatively perfect, but its larger scale breaking circle still needs the development of application ecology. Based on the theory of "bridging the gap", we believe that Web3 0 the overall ecology is now in a leap period from "innovators" to "early adopters". Innovators prefer to enter the industry based on advanced technologies such as blockchain and token economy, while early adopters enter the industry based on the great changes they can bring to the product itself, which requires the emergence of "epoch-making" single heavyweight applications. At the next level, the industry will "bridge the gap", and its decision standard is whether it can provide comprehensive product solutions (complete Ecology) for some specific problems.

In conclusion, we believe that the application ecology is Web3 Whether 0 can enter the mass market is a key factor. When I came down to see,Among the existing applications, defi and NFT are relatively mature, mainly because they are derived from Web3 0 application comes with its own economic system, so defi is Web3 to some extent 0 basic application of Ecology (for example, the exchange is the most important "traffic entrance" in the industry at present). Secondly, NFT has attracted a lot of attention with the wave of digital assets, but it is still in its early stage. There are still a lot of speculative risks. Gamefi is expected to become the next application growth point due to its wide audience and strong profitability. Applications such as axie infinity and stepn show certain potential. Finally, other directions such as socialfi are still under exploration. How to balance the economic system and industry entertainment attributes is one of the key breakthrough problems that social entertainment application designers such as gamefi and socialfi need.

Chart: Web3 0 is currently moving from innovators to early adopters

Source: Geoffrey A. Moore, crossing the chasm (2009), research department of CICC

Defi: an important basic application with relatively mature development

Defi (decentralized Finance) is an important basic application of Web 3.0.Defi, which rose in 2017 (starting from the emergence of Ethereum application Ecology), is a decentralized financial system with blockchain technology as the core. All processes are automatically completed by smart contracts, rather than relying on financial intermediaries for transactions like traditional financial markets. Due to Web3 0 application ecosystem has its own economic system, so it needs to support the operation of the corresponding financial system. Therefore, defi is Web3 0 important basic applications. In addition, because all the information of defi is stored on the blockchain, defi also has the characteristics of openness, transparency and traceability. Based on the POS mechanism, the overall lock up volume (deposit) of defi has gradually increased since 2017 and reached the peak in November 2021 (about US $109 billion), indicating the rapid development of the industry.

Chart: overall lock up volume of defi (US $billion)

Source: defi pulse, research department of CICC

Chart: defi is the sector with the largest number of Dao projects (2021)

Source: dove metrics, CICC Research Department

Against the traditional financial system, defi has built a relatively perfect system.At present, various basic functions in the defi system have been put in place - including cryptocurrency, exchange, lending function, financing function, etc.

In general, the core of the defi system consists of encrypted assets and trading system, and other types of platforms such as lending and financing are built around these two parts.Among them, encrypted assets can be divided into two types: non-homogeneous currency and homogeneous currency - non-homogeneous tokens (NFT), and homogeneous tokens include blockchain native currency similar to bitcoin and Ethereum, as well as chain derivative currency represented by erc-20 token. The trading system is the place where users trade encrypted assets. According to whether the transaction is automatically completed by the smart contract, it is divided into decentralized exchange and centralized exchange. In fact, the current exchange is Web3 0 has the largest application ecology“Flow inlet”, the core reason is that the transaction demand of various encrypted assets is the most extensive demand in the current industry. Although some exchanges can also realize lending and other functions, some platforms that realize specific functions came into being with the diversified needs of users, such as lending, financing and other platforms, which are also an indispensable part of the defi system.

Chart: structure of defi system

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), Sofi, CICC Research Department

Cryptocurrency: the core of the defi system

The heart of the modern monetary system is the same as that of the encrypted currency system.Cryptocurrency (also known as homogeneous token) is divided from a technical point of view. It can be divided into blockchain native currencies, such as Ethereum and bitcoin, and on-chain derivative currencies that rely on the circulation of other blockchains, such as BNB, usdt and Dai.

► blockchain native currency:It has its own main chain, which accounts for the vast majority of the market value of cryptocurrency, and is also an indispensable element in all DFI transactions. For example, transactions on the bitcoin blockchain need to pay a certain bitcoin as a miner's fee, while transactions on Ethereum need to pay a certain Ethereum as a gas fee.

► derivative currency on the chain:These cryptocurrencies are secondary developed and generated on some blockchain main chains following some protocols, such as erc-20 tokens (usdc, tether) on Ethereum.

Compared with traditional currencies, the biggest problem of cryptocurrency assets represented by bitcoin is that the currency value fluctuates greatly, while stable currency is a cryptocurrency with stable value through some special structures, so as to increase the cryptocurrency infrastructure with stable currency value for the whole defi system. According to different stable structures, it can be divided into digital currencies issued by the central bank; Stable currency for asset mortgage (e.g. usdt, with us dollars as collateral); Stable currency using encrypted assets as collateral (e.g. Dai, ETH as collateral); There are also algorithmic stable coins (such as UST). At present, whether the collateral is sufficient and whether the algorithm is stable are the core keys to determine whether the stable currency is really stable, which still needs to be improved.

Chart: characteristics of different stable currencies

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

Exchange: Web3 0 applies the current maximum "flow inlet"

Centralized and decentralized encrypted asset exchanges have developed rapidly in competition with each other.Crypto asset exchange was originally created to meet people's investment needs of bitcoin. With the continuous development, it has derived a variety of other functions such as token trading and NFT trading. Crypto asset exchange is divided into centralized exchange and decentralized exchange. From the perspective of trading volume, centralized exchange is still the mainstream of the market.

► central exchange (CEX):Similar to traditional securities companies, they use the order book method to match the parties who want to trade. The specific mechanism is that after the user opens an account in a centralized exchange, the exchange will automatically generate several addresses and assign them to the user, but the private key is managed by the exchange. After the user tells the exchange of the transaction demand, the exchange will trade encrypted assets on behalf of the user. Typical cases are binance, coinbase, etc.

► decentralized exchange (DEX):Similar to vending machines, users can complete the whole transaction process independently with the help of smart contracts without having to hand over the control of their funds to any intermediary or custodian. Typical cases are uniswap, etc.

Chart: comparison between centralized and decentralized exchanges

Source: coinbase annual report, official website of dydx, MESARI, research department of CICC; Note: with the increase of the transaction quota, the meal fee and hanging fee will decrease gradually. Here, only the lowest level is taken for comparison

At present, binance has the largest trading volume.Binance (BNB) is a centralized exchange established by Zhao CHANGPENG, a Chinese Canadian, in 2017. China strengthened the supervision of encrypted assets and moved overseas. In 2019, the United States also banned the operation of binance, so it launched binance US exclusively for use in the United States. By the end of April 2022, binance is still the largest crypto asset exchange in the world. The number of users, revenue scale and net profit of binance are far ahead of coinbase, the only centralized exchange listed at present.

Chart: revenue of coinbase and binance ($100 million)

Source: business of apps, company announcement, official website of the company, research department of CICC

Chart: net profit of coinbase and binance (USD 100 million)

Source: business of apps, company announcement, official website of the company, research department of CICC

Decentralized exchanges are in their infancy.The decentralized exchange almost perfectly conforms to the values of Web 3.0 and has the characteristics of openness and transparency. Users directly complete the transaction process on the blockchain and do not need to hand over the private key to the exchange for safekeeping. However, the disadvantage is that it is decentralized and difficult to track, which makes supervision more difficult. At present, the largest decentralized exchange is the DEX platform uniswap deployed on the Ethereum chain.

NFT: creating the era of digital assets

NFT (non fungible token) is a non homogenous token,At present, it is dominated by erc-721 standard on Ethereum blockchain, and other public chains will gradually use it. NFT has the following characteristics: 1) uniqueness: metadata that is permanently saved and cannot be changed; 2) Scarcity: developers determine the degree of scarcity; 3) Indivisibility: in most cases, it cannot be segmented.

Chart: NFT industrial chain value combing

Source: chainnews, research department of CICC

NFT has a market value of more than 10 billion US dollars, and the static avatar NFT ranks first.NFT can be divided into two categories: static NFT (avatar, art, collection NFT) and dynamic NFT (game, music NFT). Among them, the transaction volume of static NFT is relatively hot, which corresponds to the ownership and discord access rights of corresponding assets, but most of them can not provide additional practical value; As investors gradually tend to pursue a better experience through their assets, people's demand for non-static NFT will continue to rise. According to nftgo data, as of February 2022, the total market value of NFT has reached $18 billion, of which avatar NFT accounts for the largest market value (44.3%) and the market value is as high as $8 billion.

Chart: proportion of NFT trading volume by category (February 2022)

Source: nftgo, MESARI research, CICC Research Department

Chart: market value of NFT by category (February 2022)

Source: nftgo, MESARI research, CICC Research Department

NFT trading ecology is perfect, and big social companies begin to "enter the game"

NFT secondary market is mainly the secondary market formed by NFT after casting,Very similar to the secondary market:The boundary between buyer and seller is vague, and they are all consumers of corresponding trading products; At the same time, the transaction demand is similar, and it is expected that there are enough and high-quality products in the market, corresponding to a sufficient and reasonable price; Need to trust the platform to operate as an intermediary; I hope the transaction rate is low. Therefore, we believe that the NFT secondary market is similar to the trading platform, mainly focusing on the four aspects of "more", "faster", "better" and "province".

NFT ecosystem is relatively perfect, and open sea has obvious leading advantages.Open sea is a large manufacturer of NFT trading platform, monopolizing nearly 90% of NFT trading market share.

Chart: NFT platform fee split

Source: cryptoslam, open sea, nifty gate way, foundation, research department of CICC

Development of NFT (Digital Collection) in China

NFT is defined as digital collection in China.The "Tibetan" in digital collections also means that NFT can not be traded in the secondary market in China at present, so as to prevent extreme speculation. Alipay was the first to explore the field of NFT. In June 2021, Alipay released the "ant chain fan Granule" applet (later changed to "whale probe" app), and released the limited edition NFT payment code skin. Then Tencent launched the first domestic digital collection trading platform phantom core in August, and jd.com and bilibili.com also entered the market one after another.At present, from the perspective of business closed loop, the combination of blockchain technology and cultural and creative IP is the core mode in China.

Chart: domestic layout of NFT industry

Source: interface news, chain catcher, CICC Research Department

Treat the development of NFT market dialectically. As mentioned in the previous token chapter, NFT can be an asset of pure digital products in the virtual world, or it can represent the ownership, use right and other rights of various assets in the real world. Its application objects are very wide. However, it must be admitted that many NFT transactions are still dominated by speculation and speculation, and their asset prices are not consistent with their own values. Just as the meta universe will not arrive in a day, the development of digital assets still has a long way to go.

Gamefi: integrating entertainment and economic incentives

P2e - gamefi will integrate the fun of the game and token incentive.Because of its large audience and clear business model, the game has naturally become Web3 0 application is the primary development field. Unlike traditional games, Web3 0 era game combines NFT and token, so that users can not only consume entertainment in the game, but also obtain corresponding digital assets, namely p2e (play to earn). Compared with traditional games, gamefi economy and interest balance are particularly important. In terms of development stage,Gamefi is still in its infancy.The total revenue of more than $12 million in the new blockchain games in 2021 is still less than $1 billion, which is still small compared with the global video game market of $175-180 billion in 2021.

Chart: comparison of development modes of game industry

Source: MESARI, CICC Research Department

Axie Infinity: an economic model with a breakthrough in playability and superimposed money making mechanism

Axie infinity is a set exchange card game (TCG) based on blockchain technology and fighting by collecting pets.This game was born in 2018 and founded by Vietnam studio sky Mavis, creating a new game mode - play to earn. Axie infinity is a digital pet world. The protagonist is axie similar to pet elves. Users can not only collect and train their axies to fight other users' axies, but also raise and trade them as pets. In February 2022, DAPP radar data showed that the total value of NFT sold on axie infinity exceeded US $4 billion, reaching US $4.14 billion; The number of traders exceeded 1.9 million, while the average price of NFT sold was $198.77.Axie Infinity has become the third largest NFT market after opensea and looksrare. In fact, the breakthrough of axie infinity is based on the fact that the economy of axie infinity and early gamefi completely overwhelms the interest, and has made a certain breakthrough from the perspective of interest.

Chart: historical performance of axie infinity

Source: dappradar, research department of CICC

Chart: how the axie infinity game works

Source: axie pulse, research department of CICC

Stepn: making games healthier and more sustainable

Stepn opens up a new category of gamefi.By aggregating healthy lives, stepn users get satisfaction by exercising in the real world, rather than passively getting pleasure through consumption - they can make money while exercising. In addition, stepn relies on socialfi to establish a long-term platform to cultivate users to generate Web 3.0 content, which indicates that gamefi also pays attention to the establishment of community values and feelings in addition to game richness and economic feedback. From the perspective of sustainability, running is a relatively more sustainable user habit, so stepn may create a new era of gamefi from the perspective of sustainability.

According to the official twitter of stepn, on May 6, 2022, the daily life of stepn reached 533000 and the monthly life exceeded 2.3 million, and the profit in the first quarter of 2022 exceeded US $26 million.

► core play points:Available to all (through games as the core mechanism, stepn can promote millions of people to embrace a healthier lifestyle); Zero entry threshold (stepn does not require people to own NFT assets first. On the contrary, users can rent them for free from other users without anything, and then share the proceeds. This is easy to open the user circle); Learn before you earn (Xiaobai users can make money through games before they understand how to use decentralized wallets.)

Figure: stepn's NFT sneaker construction

Source: stepn, research department of CICC

Socialfi: there are still no broken cases

Socialfi redefines social media.Social media participants include producers, consumers (sometimes their customers switch to each other) and platforms. In web2 0 mode, the platform has a stronger voice. And in Web3 0 system, the platform intelligence will be weakened, and the roles of producers and consumers will obtain the right of ecological governance and income sharing through token system. Overall, socialfi has Web3 Several advantages of 0: ownership of data rights (users are owned by data), benefit distribution (content producers can get more income), privacy and security (third parties cannot centrally store user data). At present, the development of socialfi is still in a very early stage, and there are no significant high-quality cases.

Chart: comparison of typical cases of socialfi in recent years

Source: chain catcher, MESARI, CICC research department; Note: the data is as of May 9, 2022

Web3. Advertising and search in the 0 era: how to improve efficiency is the key

Basic attention token: it may be the advertising system Web3 0 iteration direction

Figure: brake browser token incentive system

Source: brake browser, research department of CICC

Search TCRs in primary form

Chart: conditions to be met by TCRs

Source: shermin voshmgir, token economy: how the Web3 inventions the Internet (2020), research department of CICC

Web3. 0 vs 2.0: expected to be quite long or coexist

Web3. 0 and web2 0 or will coexist for quite a long time in the future

As mentioned earlier, Web3 0 represents a decentralized concept and matches the corresponding token economic system based on the blockchain to self drive ecological development. However, from the perspective of development stage, Web3 0 is still in the early stage of development, its infrastructure still has the problem of low efficiency, and its overall application ecology is lower than web2 There is a big gap between the ecology established by 0 big factory and that of Web2.0 in the short term 0. As a result, Web3.0 will be available for a long time in the future The application of 0 is more likely to be favored by some technology enthusiasts, supporters of decentralization concept, core fans of related products and other users. Relatively speaking, ordinary users who are less interested in these elements are likely to stay in Web 2 0 application oriented,Therefore, we believe that web2 And Web3.0 0 the two may coexist for a long time in the future, and users are expected to choose the corresponding application according to their own preferences.

Web3. 0 concept can also become web2 0 direction of improvement of large factories

Efficiency first and equality at the same time.Web2. 0 platform model is an efficiency first model, but it must be recognized that the rise of large factories actually directly benefits from the rise of the overall ecology corresponding to specific platforms (for example, the rise of YouTube is essentially an ecological rise composed of content producers, platforms, users and advertisers). Due to the position advantage of the platform industrial chain, the platform has become the direct beneficiary of the ecological rise. Web3. The concept of "equality" emphasized behind 0 may also be the direction of super platform improvement in order to achieve more ecological balance and sustainable development. At present, we can see that overseas platforms such as twitter are actively embracing NFT and other concepts, while domestic ant financial services rely on the decentralization mechanism of the blockchain itself to enhance commodity anti-counterfeiting. Finally, we believe that the gold coin incentive system of Tiktok and Kwai is essentially a feedback from the platform to users.

►Twitter:Users can now use NFT as a personal avatar of their account to encourage people to sign up to subscribe to the product twitter blue. The subscription fee of twitter blue is $2.99 per month. Its members can connect a cryptocurrency wallet to their account and select an NFT from the wallet as their avatar. The user will have the right to record the image on the NFT blockchain.

► ant gold clothing:In 2018, the double 11 ant financial service used blockchain technology to trace the source. Taobao said that it would link 1.2 billion data, involving more than 150 million cross-border goods in tmall global mall [1]. Tmall mall has signed a cooperation agreement with foreign manufacturers. When the goods leave the factory, the manufacturers will systematically back up and publicize the information such as commodity composition, qualification license and so on. After the goods enter the customs, the e-commerce bonded warehouse will input and upload the logistics information and customs declaration information synchronously. After entering, all goods are pasted with a special QR code - you can see all the production and logistics information of the goods.

► Tiktok and Kwai version:The shake and fast version directly adopts the form of cash red envelope - inviting new people to download, watch videos and do tasks can get red envelopes, which is designed to refresh and retain the platform. Instead of spending money on marketing and buying users on other platforms, it's better to directly return the corresponding incentives to users. It has to be said that there are more Web3 0 shadow.

Chart: Twitter NFT Avatar

Source: Twitter, CICC Research Department

Chart: Kwai cash incentive

Source: Kwai app, research department of CICC

Actively embrace Web3 0 may also be an option

Self revolution is the necessity of pursuing sustainable development.Relatively speaking, overseas Internet companies are interested in Web3 The action of 0 field is more obvious and the layout is faster. Meta is based on the meta universe ecology promoted by oculus, which represents the support for Web3 0 embrace attitude. In addition, alphabet has also set up a blockchain department to study the next generation distributed computing and data storage technology. Relatively speaking, due to the relatively cautious attitude of domestic supervision, China's major Internet manufacturers layout Web3 0 more focus on blockchains and digital collections with relatively open supervision. In addition, it has also made investment layout for relevant companies in overseas markets.

Chart: the influence of overseas Internet companies on Web3 Layout of 0

Source: 36 krypton, rhythm, CICC Research Department

Chart: China's Internet manufacturers' response to Web3 Layout of 0

Source: 36 krypton, rhythm, CICC Research Department

Risk tip: the arrival of supervision may herald Web3 0 development on track

Face Web3 Risk of 0 -- two sides of technology development

Any technological development brings both opportunities and risks. In conclusion, we believe that Web3 0 era may mainly have the following risks:

► the tightening of monetary policy brings the risk of market fluctuation.Loose monetary policy brings inflation, which makes investors look for other assets. Crypto assets may be one of the assets considered by these investors. However, as the United States enters a new round of interest rate hike cycle, the capital market of encrypted assets may shrink, resulting in large fluctuations in the price of encrypted assets.

► anonymity mechanism brings money laundering, tax evasion and other risks.Although the attributes of decentralized transaction and anonymous transaction reduce the transaction cost to a certain extent, they also bring potential risks such as money laundering and tax evasion. Therefore, the real name of traders and increasing the traceability of transactions are one of the necessary conditions for the development of the industry.

► the token mechanism may hurt investors and other risks.Token token mechanism penetrates into all aspects of Web3, and the incentive token for all ecological parties and the financial value it brings (such as securities attributes) will inevitably bring market fluctuations and speculation. This activity may bring potential harm to ordinary users (investors), similar to crowdfunding or fund-raising.

► risks such as loopholes in technology and mechanism settings.In the early stage of industry development, there may be problems such as insufficient technical reserves and imperfect mechanism design, and the economic value behind it will inevitably bring the possibility of attack and potential losses. In addition, the continuous prosperity of the defi financial system may lead to more and more complex financial markets, and the risk of any link may affect the whole market. Therefore, there should be some industry supervision for cryptocurrencies with different attributes.

Current Web3 0 regulation: China and the United States are relatively cautious and are expected to continue to improve

Moderate supervision is a necessary condition for the industry to enter the right track of development. Facing the above mentioned Web3 0 development may bring potential risks, appropriate supervision has become necessary. In fact, the relatively perfect regulatory environment also indicates that the development of the industry is on the right track, and the industry can really enter the mainstream. At present, China and the United States are very interested in Web3 0 field supervision is relatively cautious, among which China holds a ban on cryptocurrencies.

► China:China has an open policy orientation for blockchain technology and believes that this technology can promote the development of science and technology in the future. However, we are cautious about blockchain derived applications (defi and NFT), especially for highly speculative transactions: in terms of defi, China comprehensively prohibits token issuance, ICO, token transactions (involving exchanges) and other activities with high financial risks; In terms of NFT, China allows the issuance of NFT, but can not conduct secondary transactions in the NFT market to avoid speculation.

► USA:The early regulation was in a confused state. In 2020, Congress divided encrypted assets and designated different regulators according to categories (among which sec is the most stringent). The overall regulatory exposure is larger than that in China. Token issuance, financing and trading are not prohibited (strict regulation focuses on ICO and securitized tokens), and the regulatory environment is relatively more relaxed. Recently, President Biden signed an executive order, the future of the United States against web 3 0 regulation may further shrink, focusing on the protection of consumers and investors, financial stability and illegal financing.

► others:Most of the supervision of other countries also focus on encrypted assets, especially on securitized tokens. At the same time, most countries will conduct defensive supervision based on the risk of anti money laundering and anti-terrorism financing. In addition, some countries have introduced license systems for encryption enterprises (such as Japan, Singapore, South Korea, etc.).

[1] https://m.thepaper.cn/newsDetail_forward_2641310

Article source

This article is excerpted from "Web 3.0: a new paradigm opens a new stage of the Internet" published on May 17, 2022

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