2023 Web3 and metaverse predictions: The year of interaction, interoperability and loyalty
Newsletter #16 - January 4th, 2023
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It’s that time of year again when everyone posts forecasts for the year ahead. I’ll be honest and say that most are a bit boring because there is so much repetition.
Despite that, I still wrote my own. Sorry.
I have tried not to read all the others yet in order to keep myself as original as possible, and I also tried to make it a bit more interesting by doing three things:
Where I call for the continuation of a trend, I try to add new detail or expand on it in an interesting way to hopefully show how it will be different going forward. And where possible, I try to keep things interesting by predicting something entirely new.
Adding a reference to evidence that I believe justifies my belief
Adding a metric that can be used to validate the prediction
This does mean that I am much more likely to be wrong than other people. In truth, I hope that I am wrong in some cases as not all of my predictions are bullish. That said, these are my best guesses for the year ahead.
PREDICTION 1 – Business adoption of web3 will accelerate as NFT use becomes increasingly frictionless and free
In 2022 we saw many brands rush into the NFT and web3 space, most notably identity brands. By that I mean the luxury, fashion, and sports brands that have built businesses around status. For them, the concept of “digital scarcity” was a natural extension of the type of status and exclusivity that has long been the foundation of their brand’s value. Monetizing that scarcity through speculation was an easy business model to adopt, and came with an audience of speculators who were happy to tolerate user experience challenges in exchange for the prospect of future trading profits.
In 2023, I expect to see many of the User Experience challenges get smoothed out as brands start to integrate “NFT/Crypto wallets” directly into their mobile apps – while also shifting from a “sales model” where they try to sell NFTs to an experience, engagement and loyalty model where NFTs are given to people for free as rewards and/or proof of interaction.
Don’t get me wrong, these improvements won’t solve all the experience problems. We still have a long way to go on that front. But it will result in a broader range of brands choosing to launch NFT-based customer engagement platforms, most notably sizable e-commerce and loyalty programs (travel, retail, and to an increasing degree CPG). I would suspect that by the end of 2023, activity in these categories will dwarf the previous activity from luxury and status-based brands.
Why I believe this:
Some brands are already starting to integrate Crypto Wallets into their primary brand app. One brand to watch that is actively supporting brands in launching such solutions is Arianee.
Web2 tech giants are starting to build web3 solutions which are in turn facilitating integration and adoption of these services by their existing client base.
The most notable example is Salesforce which announced NFT Cloud earlier in 2022. Since then, they have launched multiple client projects that connect across loyalty and commerce.
Other examples include:
Shopify who are making it easy for users on their platform to integrate token gating services thereby providing a real incentive for retail and eCommerce brands to extend the value they offer to customers through web3 services
Stripe who are helping business process transactions between FIAT currency and crypto.
How I will evaluate my prediction:
While Polygon will likely maintain its position as the brand chain of choice, expect to increasingly see the web2 tech giants named beside them as their tools are increasingly used to manage web3 services and data. Yes, you are hearing me correctly, 2023 will be the year that web2 tech starts to win the web3 game.
Crypto wallet integration into brand apps will become the norm (although this will create new challenges as mentioned below) as more brands look not just for holders but participants
By end of 2023, everyday brands will see more customer interaction through web3 services than their luxury and status brand counterparts
Beyond the above, what I hope to see is a solution that enables interoperability between wallets (yes, even custodial wallets). This will be needed as the increased number of custodial wallets contained within brand apps will in effect work counter to the promise of decentralization by creating mini-walled gardens as opposed to one open and exposed ecosystem. While this will be a problem, for now, brand wallets will still be a big step forward as we move toward true interoperability.
PREDICTION 2 – The web3 conversation will shift focus from adoption to interaction
If you were at all involved in the NFT / Web3 space in 2022 you’ve heard a lot of talk about “utility” and you’ve seen many people celebrate this utility as an onramp to getting people their first tokens. But let’s be honest with ourselves, most of the promised utility is really nothing more than access to a game that may or may not exist at some point in the future, or maybe you got a free article of clothing with your NFT.
The truth is that what we got were lots of promises that led people to accumulate tokens and then never interact with them again after purchase (unless it was to sell them) because there was no real utility. Most tokens that promise utility provide no real reason to interact with or use the token over the long term.
There are exceptions where tokens unlocked services, exclusive products, or acted as a key to access a real and vibrant community. I expect this type of utility to continue and to grow. But as brands with existing real-world products start to launch their own web3-powered services, I expect to see significant innovation around the type of utility that is delivered. In short, I expect the promise of utility to be realized through real services where the metric of success isn’t how many people got one of your tokens, but rather how often they use/interact with your token to access a product or service that they value. In this way, the utility will be a driver of web3-powered loyalty.
So simple NFT / token ownership will be seen with the same skeptical eye as web2’s bot-powered ghost “likes”. After all, you can give everyone a token, but as they increasingly get given away for free, then if they aren’t using the token and interacting with it, does it really matter?
Why I believe this:
More platforms are making token-gating not just possible, but easy to implement
An increasing number of tools are enabling “wallet-aware” experiences that connect across both digital and the real world (e.g. Token Proof)
Nike and Starbucks are both connecting their larger mainstream audiences to web3 services through .SWOOSH and Odyssey respectively
How I will evaluate my prediction:
Starbucks will provide updates on the performance of Odyssey within their future Quarterly Reports. In this report, I predict that they will share details not only about the number of users, but also about the frequency of engagement by each user within the program. By the end of the year, I expect they will also report on value per user but that may only come in 2024.
Nike will integrate .SWOOSH with Nike Running Club, Nike Training Club, CRM, and all other areas to create one master identity with the ambition of creating a model that incentivizes interactions across platforms.
A large-scale travel loyalty program like Star Alliance (or maybe a credit card like American Express) will announce an “Open Access” and interoperable version to their program that allows partners (eg. hotels, restaurants, etc) to leverage a common token-gated earn-and-burn mechanism. This will effectively allow other brands to create reward programs that directly connect to Star Alliance.
I suspect that is just the tip of the iceberg of what types of interaction we will see. The problem, however, is that many of the use cases that will be launched still won’t really require web3 technology. In many cases, I suspect we will see services launched that could have been delivered using the existing web2 services a brand already has access to. And yet, while this might sound like a bad thing, I would argue that doing what we know with new tools is how people will learn to use the tools in a more native way. So in short, this is still the right path.
PREDICTION 3 - Decentralised Identity platforms will gain users as people focus on personal digital reputation
Digital reputation started as something that only brands needed to worry about. Then influencers came along and reputation was critical for them to grow their audiences. But now, as our digital lives increasingly overlap with our real lives, digital reputation is growing in importance for everyone.
How will an artist know that I am a die-hard fan?
How can a brand reward me for my continued engagement over time?
Yes, loyalty programs can help with this, but most loyalty programs have little information beyond the fact that I am a member and get their emails. They don’t know that I am always the first to download a new release, or how much I stream their music, or that I regularly talk about and promote a specific brand. POAP (Proof of Attendance Protocol) tokens have the power to change this as they are given to people in the moment of activity.
You joined the live webinar – get a POAP.
You came to our in-person event – get a POAP.
You finish a course of study or complete some training with us – get a POAP.
You bought a limited edition product that is digitally connected - get a POAP.
We met in real life – get a POAP.
You recommend a product or a song - in this case maybe you give a POAP.
In short, POAPs can measure the micro-interactions that people have with businesses, brands, and people digitally and in real life.
By the end of 2023, tokens to reflect personal and/or meaningful interactions will have taken root as a normal part of personal reputation building. Whether powered by POAP or another protocol, this behavior will become much more commonplace with reputation being defined and rewarded by brands on a personal one-to-one level.
Why I believe this:
While personal branding is becoming increasingly important, traditional tools do little to help validate reputational claims. This was made most apparent in the recent US election where George Santos lied about his qualifications and no media or people discovered this until after the election.
POAPs are already being used to reflect brand interactions (Porsche + 9dcc)
There were lots of free Christmas Season NFT mints seen that were designed to build and reward the community. These came free mints were in some cases used as indicators of engagement as was done by the NFT artist FVCKRENDER.
How I will evaluate my prediction:
Tools that allow marketers to profile GenZ and GenAlpha audiences based on POAP and token holdings will grow in popularity
LinkedIn will launch an interoperable standard (or maybe they will partner with POAP) to create a decentralized reputation tokens format that works across multiple sources. Or they might also just let people display their POAP wallets within their profiles.
A large CPG brand will use tokens distributed through IRL interactions at a one-to-one level for rewards and community building
Real-world events will become one of the largest sources of Token Distribution as Proof of Attendance. And most large live events will also start to include post-event token-gated digital content replays or other services. In many cases, these digital replays will also connect to commerce.
A few start-ups will move towards building true 1-to-1 personalization solutions that use tokens as the basis for insights.
As a big fan of Decentralised Identity, I don’t think 2023 will take us as far as I wish it would. For example, adoption of tokenized globally interoperable KYC and AML solutions will grow but is unlikely to go mainstream. That said, I expect we will see some major Financial Service brands building towards these solutions, even if they are not interoperable internationally yet.
And the side benefit of this is that we will see a real start for interoperable identity services such as Lens Protocol.
PREDICTION 4 – Many more NFT collections and blockchains will go to zero
This is an easy one. So many collections and chains have already lost huge value, so this is just the continuation of a trend.
But here is the real issue, as brands get into the mix and launch “free” NFTs, the revenue model for existing collections will experience pressure and will likely need to change and adapt. This new “free” supply of NFTs and “digital collectibles” will reduce the desirability of new drops – even from existing and established collections. Beyond this, low trading volumes will result in royalty revenues that are far lower than 2022 levels and which won’t be large enough to maintain a strong business for most collections. As a result, brand partnerships and other innovative new usage-based revenue models will become essential for a collection’s continued growth.
Why I believe this:
Many smaller collections have already gone to a near-zero value, or seen revenues drop so low that the founders have given up the IP to the community
Established collections with strong track records are seeing their new drops launch and settle at much lower floor prices than previous benchmarks.
One example of this is Animus from RTFKT has maintained a floor price below 1 ETH since its drop in early December vs. MNLTH which dropped in May with a floor price of over 7 ETH
How I will evaluate my prediction:
At least one “blue chip” collection will go to zero value as they fail to adapt to new revenue models
PREDICTION 5 – Many blockchain prices will shift from a speculative asset pricing model to tech product pricing model
This is probably my most controversial prediction, and I need to say upfront that THIS IS NOT FINANCIAL ADVICE. Do not make investments or investment decisions based on this as it is purely speculative.
Now after the warning, here is a bit of detail about my speculation.
Blockchain, tokens, cryptocurrency. The terms are often used interchangeably and that is a problem. By referring to so many things in the same way we create a tendency to treat them and to price them in the same way. But they are not all the same. In fact many blockchains have very different purposes.
A few examples would be:
Bitcoin (BTC) was created as an alternative to currency. It is an asset with a finite supply that cannot be expanded through inflation.
Ethereum (ETH) was intended as a platform to facilitate immutable, programmatic (smart) contracts and applications via a global virtual machine. This machine operates on a blockchain that had until recently been secured through Proof of Work but is now secured through Proof of Stake.
Solana, Avalanche, Cardano, and many others have been developed as alternatives to ETH that offer improved scale and speed, but with a similar purpose.
Polygon, Optimism, and Arbitrum are Layer 2 chains that sit on top of Ethereum while offering solutions to the speed and scale challenges faced by Layer 1 ETH.
The list goes on, but in almost all cases aside from Bitcoin, the primary purpose of a chain is focused on its ability to immutably store data and execute programs / smart contracts. As I interpret this, the primary purpose behind most chains is not to be a currency. Instead, they are developing themselves as tech solutions where the primary product is block space.
So what should block space cost?
This is actually a complicated subject that could form the subject of a full newsletter on its own. For now, let’s skip the variables and inputs that would contribute to calculating fair value, and let’s just look at historical tech product comparables.
In each of the cases above, storage, memory, and CPU compute power, the cost of access and usage has gotten cheaper over time. The cost efficiency comes from improved technology, but also from the fact that there is a greater supply and in some cases alternative supplies that people can use.
While the popular argument is that blockchains have a finite number of tokens / block space and are therefore a scarce resource, the trust is that outside of Bitcoin, there are many choices for brands who want block space, and there are many scaling solutions and strategies in the market which means that useable block space is increasingly abundant. For example:
Alternative Layer1 chains (such as SOL, AVAX) offer a potential substitute to ETH
Layer2 chains (such as Polygon) are actively improving scalability.
Improvements to the Ethereum chain such as the recent move from Proof of Work to Proof of Stake are also impacting things by reducing the cost base required to secure the chain, and future planned improvements to ETH are set to create further efficiencies.
So while I don’t have a price prediction, I do think we will see those chains that are designed to operate as virtual machines move towards pricing models more in line with typical tech machines. This means that the availability of substitute chains, and access to block space should reduce price volatility and ultimately see pricing models move away from a speculative model and move towards more traditional tech product pricing.
How I will evaluate my prediction:
Price swings and volatility in product-priced chains will decrease to a more normalized range. I’d predict the daily average price volatility to be half of what it was in 2022.
Price will be based on a fair value model derived from the fundamentals of both the technology and usage. A model for fair value pricing will gain relative consensus.
PREDICTION 6 – Disney will actually buy a large web3/metaverse development business
I’m not the first to predict this. I think a rumor of this sort came out in mid-2022 when people suggested that Disney would buy Dapper Labs. That particular acquisition never happened, but the reasons for an acquisition remain so it’s time for me to double down.
I say this because an acquisition like this could facilitate a much larger play that works on two fronts:
The development of a blockchain based loyalty program connecting all Disney Assets. One chain to manage interactions with Disney IP (Disney Films, Marvel, Star Wars, ESPN, Hulu, etc) and Disney properties (Disneyland, Disney Cruises, etc) through a tokenized “Proof of Behavior” mechanic.
The launch of a tokenized Metaverse environment to extends the reach, life and effectiveness of their existing IP using token gating.
For example, imagine if after buying a movie ticket to see Indiana Jones 5 you could use that same ticket (because in this example the ticket is also an NFT) to access the Indiana Jones metaverse space. In that space, Disney would enable non-linear storytelling. So you could read Indiana’s diary or explore other areas of the film’s backstory in the order that you want to. And building the backstory content could be done using AI like ChatGPT. Using the films, the TV shows, and general history as input, ChatGPT could write the Diary of Indiana Jones. Point is that linear story-telling (films) could be partnered with non-linear story telling environments (metaverse) to give people more ways to explore and engage with IP.
How I will evaluate my prediction:
I am not sure who they will buy. It could still be Dapper Labs as there are many reasons this would make sense, but Disney is working with a number of different chains at the moment, including Polygon, so may want to leave the tech development and chain management to established partners. On that basis, I will consider this prediction to be correct if they buy a metaverse / web3 development shop and launch either a tokenized loyalty program or a connected Metaverse environment that extends the reach of their IP. Most likely it will be both.
As a bonus prediction, I think there will be a few other large-scale purchases in 2023. For example, I wouldn’t be surprised if MasterCard makes so big acquisitions in the web3 space. They have been aggressive about getting in so far and I wouldn’t be shocked if they use the bear market as a good time to buy. If they do, I would expect them to buy a Web3 loyalty platform that could be integrated with their commerce services to create tokenized SMB loyalty programs or interoperable loyalty programs.
Another area where I would expect to see acquisitions is around web3 analytics and segmentation. Again for loyalty and media purposes.
PREDICTION 7 – Metaverse will become an increasingly common part of a marketing campaign, while overall Metaverse traffic will remain low
As happened with the internet before it, brands will race to adopt Metaverse as a new channel for engagement with consumers. This is despite the fact that organic traffic to branded metaverse environments will remain low, and so succeeding in the space will be largely dependent on media spend to drive traffic and footfall.
While that might sound pessimistic, believe me, it’s not.
For today, let’s say that Metaversal technologies offer people multiple points of entry including Augmented Reality (AR), Mixed Reality (MR), Virtual Reality (VR), but also Virtual Gaming Environments, to Tokenized worlds. Of these, it’s safe to say that Gaming will continue to command the lion’s share of traffic, but that doesn’t mean that brands building in those spaces will win by default. After all, people play games to have fun, so brands need to find ways to be relevant while adding to the fun and not distracting people from the reason they are playing the game in the first place.
Outside of gaming, AR will continue to be the big winner in 2023 as more brands use these technologies to make themselves relevant beyond the borders where their product is typically relevant. This is the key point - they will win by extending their contextual relevance - or by just making things fun. One of my favorite examples of this type of work from last year was the location-aware AR concert from Gorillaz that was only visible to people in Times Square (USA) or Picadilly Circus (UK).
But of course, AR won’t be the only tech to matter in 2023.
With Meta’s new Mixed Reality (MR) headset, plus HTC, and Apple's promised hardware releases, big things seem inevitable in the MR space. I suspect though that the biggest advancements in MR will be in the software space with announcements coming from Niantic, Snap, Unreal, and Unity.
In terms of Virtual Worlds, I believe we will see some big AI announcements for tools to build worlds (or at least the editable foundations of worlds) using nothing more than text and audio prompts. ChatGPT, Dall-E, and MidJourney brought a lot of focus to Generative AI in 2022, and I suspect that we will see how this impacts Metaverse and 3D models in 2023. Most likely this will be led by NVIDIA who already have an assortment of AI tools - although most are positioned for developers today. That said, I expect that we will see them launch quite a few consumer-friendly tools this year.
This won’t make world-building easy, but it will make it a lot faster. All that said, with so many virtual world environments being created, traffic and a reason for people to return on a frequent basis will remain elusive outside of gaming and business collaboration environments. My suspicion is that this won’t stop brands from building in these environments as they look to test, learn and stake their claim in this new channel.
How I will evaluate my prediction:
Multiple brands will connect their Real Life sponsorship activities with virtual world access to ultimately extend the value of sponsorship
As stated above in prediction 3 above, IRL events will often be the source of token distribution for Metaverse access. Expect to see a few big Hollywood films build this type of connection and extend the reach of their IP.
The development of branded Virtual World environments will become grow in popularity in the same way that building a website did. Success for these environments will typically be connected to campaign activity where media spend will help to drive traffic
AR will become almost a standard element for campaigns and packaging. A lot more of this work will not require a QR code to trigger the experience
An AI tool will be launched that expedites building 3D Metaversal worlds using nothing more than natural language
Summary
I feel like prediction articles are the sorts of things that can go on forever. There is after all so much that I didn’t even touch on.
I didn’t talk about DAO’s even though I expect us to see a lot of activity there in 2023 from brands and universities.
I didn’t talk about ZK Proofs or AI - both of which are technologies that will drive huge advancements how people experience metaverse / web3, albeit having impact in very different ways.
I didn’t talk about Regenerative Finance and Quadratic Voting, and yet I really believe we will see some very interesting Use Cases and prototypes launched in the next year - even if still only at a limited scale.
I didn’t talk about Digital Twins, but with the increased connectivity between the digital and the real world, I am certain this will be a big topic in 2023.
And I didn’t talk about legislation even though I am certain we will see much more of that as some markets look to encourage growth in this area and other markets look to limit access.
There are so many more topics that would be great to discuss and that’s a good thing because it means I have a lot to write about in 2023.
As one last prediction, I would guess that the whirlwind of activity that 2022 brought in terms of financial ups and downs with token valuations, will be reflected next year not through the speed of price movements, but through rapid improvements in the user experience of both web3 and metaverse. I believe we will see some crazy experimentation across the customer experience landscape, we will see new tokenized and open-access models for customer loyalty that are designed to drive interaction, and we will see improvements in interoperability between services, brands, and even between the digital and the real world, and we will see AI impact all of it in ways that most people couldn’t have even been considered or even imagined a few years ago.
In this regard, I predict that 2023 will be a lot of fun.
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