18Sep 2018

Unprecedented Value Capture in Web 3.0

by Henrik Andersson

We are moving to what we believe is a new era of decentralisation. The next web, Web 3.0 will be an open web where anyone is free to innovate without having to be restricted to the walled gardens of the current web, Web 2.0. This is how we like to illustrate the coming transition:

Web 3.0 will unleash a new wave of innovation.

Web 3.0 will unleash a new wave of innovation.

For entrepreneurs this is great news, anyone can build on top of a platform like Ethereum, that’s the power of a permissionless blockchain. They are not restricted by the terms of services for an app store and they don’t have to give away a substantial part of their revenues to a third party. For the users, the benefits are security (centralised databases sooner or later gets hacked), ownership of data and identity and the freedom to move your data between the coming ecosystem of decentralised apps, or ‘dApps’.

Another way to think about this transition is to look at the value capture in this transition. Union Square in 2016 published the now famous ‘Fat Protocol’ hypothesis. This is our simplified version of the fat protocol:

Crypto hedge funds love the Fat Protocol hypothesis!

Crypto hedge funds love the Fat Protocol hypothesis!

The idea is that value is following the data, so when we move to a decentralised world where blockchains are the new protocols for data and value — that is also where most of the value will be captured. We will have a massive ecosystem of application on top of these new protocols, but that’s not where the majority of the value will accrue.

We would like to add to this picture by stating that Web 1.0 and Web 2.0 will still be present alongside Web 3.0. Just like we have some mostly static informational web sites today reminiscent of Web 1.0, as we move to a more decentralised web, today’s most popular services will likely still exist. Facebook and Twitter will very likely still be present on the web for a long time still, and they are likely to continue to capture substantial value even in the future. We are indeed perhaps not primarily decentralising the current web. Instead blockchain technology enables a much bigger web through human and machine interactions that simply wasn’t possible before.

Apollo’s vision of the future is therefore a much bigger web that can capture more value than ever before:

Not only different but bigger!

Not only different but bigger!

Thanks to blockchain technology, we can now add substantial value to the current web, we believe mostly along three lines:

  • Digital Ownership. Blockchain technology makes digital ownership possible. Be it of money, data, identity or digital goods.
  • Smart Contracts. With smart contracts an open financial system will be built and available to anyone in the world. Borrowing, lending, derivatives and the democratisation of fund raising. A longer term vision encompasses the rise of decentralised autonomous organisations or ‘DAOs’.
  • Tokenisation of Everything. I’ve previously written on this topic and how real estate, hedge fund and VC interest will be tokenised and then later today’s liquid assets.

To summarise, Web 3.0 is less about the coming disruption of Facebook, Twitter and Uber and more about enabling new forms of value capture, uniquely enabled by blockchain technology. This is the exciting future we invest in and the reason we are so passionate about our mission at Apollo Capital.

Henrik Andersson

Henrik is the Chief Investment Officer at Apollo Crypto and is the fund manager for the Apollo Crypto Fund. He also acts as the fund advisor for the offshore Apollo Crypto investments funds, the Apollo Crypto Frontier Fund and the Apollo Crypto Market Neutral Fund. Henrik's expertise in traditional financial markets comes from spending a decade on Wall Street as a vice president in institutional equity sales. His exceptional understanding of DeFi comes from co-founding two successful DeFi protocols, mStable and dHEDGE.