Analysis of the Current Status of the Web3 Ecosystem and Outlook on Application Prospects

Recently, the Web3 community has been increasingly disappointed with the performance of the Ethereum ecosystem, mainly due to its secondary market performance falling short of expectations. There are several key factors behind this phenomenon:

First of all, the lack of new capital inflows is the fundamental reason. The new funds in the current cycle are mainly concentrated in Bitcoin ETFs, but this capital is limited to the Bitcoin single currency and has almost no spillover effect on other cryptocurrencies.

Secondly, the internal funds of existing exchanges are showing a trend of not taking over from each other. Different regions and investor groups have varying interests in their respective narratives and ecosystems, resulting in particularly poor performance of Ethereum ecosystem projects in the secondary market.

Thirdly, this round of cycles has overly focused on infrastructure construction, lacking innovation at the application layer. This phenomenon is not limited to the Ethereum ecosystem but is a common issue across the entire Web3 field. As value is primarily captured by the underlying chains, investors are more inclined to support various Layer 1 and Layer 2 projects rather than innovations at the application layer.

To break through the current predicament, the key may lie in innovation at the application layer. Ethereum co-founder Vitalik Buterin proposed two core characteristics of an ideal Web3 application: continuous usefulness and adherence to fundamental principles such as decentralization. From an investment perspective, the ability to generate revenue and positive externalities can also be added as two features.

Under these standards, we can analyze several potential Web3 application directions:

1. DeFi (Decentralized Finance): Although DeFi protocols themselves have long-term value, their governance tokens still face challenges in value capture. Nevertheless, DeFi remains one of the most successful application scenarios in Web3, aligning with the principles of ongoing utility and decentralization.

2. Prediction Markets: This field is highly compatible with the Web3 concept, featuring characteristics such as decentralization, global participation, and automatic execution of smart contracts. For example, a well-known prediction market platform performed remarkably during the U.S. presidential election, showcasing tremendous market potential.

3. DePIN (Decentralized Physical Infrastructure Network): This is not only an innovation in infrastructure but may also become a carrier for future applications. From decentralized communication networks to distributed storage, and possibly shared transportation networks, DePIN showcases broad application prospects and positive externalities.

Overall, the breakthrough for the Web3 ecosystem may lie in innovative applications that can achieve large-scale user adoption. These applications need to adhere to the fundamental principles of Web3, such as decentralization and permissionless access, while also having sustained practicality, self-sustainability, and positive externalities. With the emergence and maturation of these innovative applications, we have reason to remain optimistic about the future of Web3.