Source | IOSG Ventures Author | Jocy & Ray
Key Takeaways
1. In the Web 3.0 era, users will reclaim greater control over their identities and data. While the high switching costs, powerful network effects, and superior user experience of today's internet giants create formidable moats unlikely to be breached overnight, the growing user demand for data sovereignty—a spark today—will inevitably ignite a wildfire tomorrow.
2. Web 3.0's killer apps will not be corporate creations but community-led, open-source innovations born from genuine user needs. The paradigm will shift from product-centric to user-centric open-source development. The Web 3.0 tech stack forms the foundational skeleton; a rich ecosystem of modular, open-source protocols underpins its applications; and a culture of open, transparent, and collaborative community governance will become the standard for building consensus.
3. Every major industrial transformation has been propelled by open-source innovation. Each wave follows a recurring market pattern: decentralization → expansion → consolidation, a cycle that repeats continuously. We are confident that Web 3.0's technological breakthroughs will trigger a similar revolutionary wave.
4. With the Web 3.0 technology cycle upon us, distributed systems, cryptography, and smart contracts are entering mainstream life at an unprecedented pace, pushing the industry into a phase of speculative frenzy. Investment capital (speculative value) is flooding in faster than productive capital (utility value), inflating asset prices until an inevitable correction. Nevertheless, the core infrastructure technologies will establish themselves as the new baseline, and numerous platforms defining niche application categories will emerge during this cycle.
I. Looking Ahead Through the Lens of IT Market Cycles
Open-Source Innovation Drives Industrial Transformation
The Hardware Era — The Open-Source Computer Era: In the 1970s, IBM's technical leadership laid the foundation for the computer industry and indirectly catalyzed the rise of personal computers, paving the way for Microsoft and Apple.
The Software Era — The Open-Source Software Era: By the 1990s, Microsoft launched Windows 1.0—a more affordable operating system that evolved over five years from a Mac OS fork into the highly PC-compatible Windows 3.0, redefining the software era. The rapidly scaling PC market created massive demand for software systems, allowing platforms like Microsoft to forge unique commercial value, establish the industry's business model, and generate substantial revenue through ecosystem development.
The Networks Era — The Free Content Distribution Era: Following the dot-com bubble burst at the turn of the millennium, today's most influential companies—Google, Amazon, Facebook, eBay, Twitter, PayPal, and Netflix—emerged. This period marked the standardization of internet business models, shifting from Microsoft's software-sales approach to online services.
In a fiercely competitive, diversified market, giants like Google, Facebook, and Amazon rose to dominance. Their core asset is user data—extracting valuable insights (e.g., behavioral patterns, preferences) and monetizing them (e.g., via advertising), thereby dramatically expanding their business boundaries. This also allows them to leverage economies of scale and resource advantages to consolidate entire industries.
The Mobile Internet Era — The Open-Source Mobile Application Era: Beginning around 2010, iOS and Android disrupted the landscape dominated by internet giants like Google, eBay, and Amazon. Entrepreneurs rushed to pioneer mobile-first business models.
This period saw the rise of successful mobile applications and platforms, including Chinese tech titans like WeChat and ByteDance. Their success stems from leveraging big data analytics, AI, and algorithms to precisely analyze vast amounts of user data, identify potential customers, uncover deep user needs, and ultimately achieve commercial monetization.
Apple, meanwhile, pioneered a truly user-driven business model. While conventional IT firms are technology-driven, Apple starts from human emotion and user needs—layering its deep technical expertise to deliver beloved services and products, building a thriving ecosystem around them.
As illustrated in Chart 1 and Chart 2, from the earliest hardware era to today's mobile internet era, every industrial shift has been driven by open-source technological innovation. Behind each wave, market evolution consistently follows the same pattern: decentralization → expansion → consolidation—a cycle that repeats endlessly.
II. From Web 2.0 to Web 3.0: Blockchain’s Restructuring of Production Relations and Organizational Forms
1. Web 3.0’s Forward-Looking Values: Building a Trustless, Decentralized Network
The "user-generated content" model of Web 2.0 faces a critical challenge: user data, original content, and even underlying network logic are controlled by centralized corporations. User data security, privacy, and the value of that data are widely threatened and neglected. The Web 3.0 architecture promises to fundamentally resolve these issues.
In our view, the vision for Web 3.0 has been iterated and refined over the past decade. Today's concept represents a relatively mature set of values: it aims to build a decentralized, anti-monopoly, interoperable, privacy-respecting, and mutually supportive internet ecosystem through distributed infrastructure.
2. Web 3.0: A Distributed Internet
In 2014, Gavin Wood—co-founder of Ethereum and Polkadot—first coined the term "Web 3.0." He envisioned a peer-to-peer (P2P) network enabling cooperative interaction without the need for trust, achieving true decentralization via messaging and data publishing technologies. The Ethereum platform—often called the "cornerstone of Web 3.0"—has partially realized this vision. Despite technical constraints like poor scalability, Wood's core thesis stands: "Centralization cannot sustain itself long-term in societal development; traditional governing institutions are too bloated to solve many pressing problems."
Bitcoin (BTC) emerged as early as 2009. Over the past decade, the collective vision for BTC—and for the broader Web 3.0 era—within its community of developers and contributors has shifted significantly, even fracturing at times. Nic Carter, founder of Castle Island Ventures, conducted a detailed analysis (see Figure 3) tracking how the crypto community has described BTC over the years: "Proof-of-concept for electronic cash" (the earliest description), "low-cost P2P payment network," "censorship-resistant digital gold," "private and anonymous dark-web token," "reserve asset for the crypto industry," "programmable shared database," and "uncorrelated financial asset."
These evolving definitions of BTC and crypto assets help explain the ecosystem's divergent developmental paths. A classic example is the inherent tension between the "low-cost P2P payment network" and "digital gold" visions, which culminated in the BTC community's split in August 2017. Carter notes that the BTC protocol's vision of anonymity and privacy also sharply contrasts with the transparent blockchain championed by many.
3. Web 3.0 Will Bring Profound Change
In 2018, U.S. internet healthcare company 23&Me launched a saliva-based genetic testing service for just $99, providing a comprehensive report—far cheaper than traditional tests costing thousands. However, 23&Me monetizes by reselling vast amounts of user data to pharmaceutical and big-data firms. Revenue from this backend business offsets consumer-side losses, yet users receive no share of the profits derived from their data.
Now imagine if 23&Me were a blockchain-native company. Users could retain ownership of their data, grant permissioned access to tech or biopharma companies, and receive future platform revenue shares (e.g., tokens) in return. Users would earn income based on the reuse value of their data, while medical research outcomes remained fully accessible and transparent to them. This highlights the fundamental difference between Web 2.0 and Web 3.0 companies.
A distributed Web 3.0 ecosystem promises transformative change. Kevin Kelly systematically articulated the theory of distributed systems in his book *Out of Control*, highlighting key advantages:
(1) Swarm Intelligence: Analogous to bee colonies, where individually simple units form a self-organizing system of equals;
(2) Enhanced Resilience: Distributed organizations are more robust against systemic risks than centralized ones;
(3) Bottom-Up Awareness: System awareness emerges from the collective, enabling high levels of democratic participation;
(4) Fault Isolation: The system is insulated from damage caused by corruption or failure at any single node.
The privacy breaches and security risks stemming from hyper-centralization are serious and undeniable. Thus, Web 3.0 seeks to compete directly with today's digital monopolies. It envisions a modern, decentralized internet composed of numerous independent projects—providing the platforms and infrastructure for peer-to-peer, decentralized services. As Gavin Wood wrote in *Why We Need Web 3.0*: "Web 3.0 will spawn a new global digital economy, create novel business models and markets, break up platform monopolies like Google and Facebook, and generate abundant bottom-up innovation. Cheap, authoritarian attacks on our privacy and freedom—such as mass data collection, censorship, and propaganda—will become significantly harder."
III. Decentralization of the Tech Stack: Investment Opportunities Embedded in Technical Architecture
The decentralized value proposition of Web 3.0 rests on a decentralized technology stack. While developing this stack faces persistent challenges—especially around scalability and security—solving these problems is precisely what makes the space so compelling.
1. Core Stack
The Core Stack comprises the indispensable technical foundations for the entire blockchain ecosystem. These fall into two categories: (a) underlying blockchain infrastructure, and (b) essential technical components required for decentralized application (dApp) development.
Here we highlight only the most influential and indispensable components, offering brief analyses of their current development status and degree of decentralization.
We define the Core Stack’s main components as: Decentralized Application Browsers (Dapp Browsers), Application Hosting, Query Layer, State Transition Machine, Consensus Layer, and Peer-to-Peer (P2P) Layer.
01 Decentralized Application Browser (Dapp Browser)
Representative Projects: Mist, MetaMask, Coinbase Wallet, Trust Wallet, imToken
02 Application Hosting
Representative Projects: IPFS, Swarm
03 Query Layer
Representative Projects: Chainlink, Band Protocol
04 State Transition Machine
• Ethereum Virtual Machine (EVM) – Ethereum 1.0, Ethermint, Hashgraph, WANchain, etc.
• WebAssembly (WASM) Virtual Machine – Dfinity, EOS, Polkadot, Ethereum 2.0
• Direct LLVM exposure – Cardano, Solana
• Custom state transition machines – Kadena, Tezos, RChain, Coda
05 Consensus Layer
Representative Projects: PoW, PoS, DPoS
06 Peer-to-Peer (P2P) Layer
Representative Projects: Libp2p, Devp2p
2. Potential Core Stack — Extended Core Stack (Coda)
These technical components are neither part of the base layer nor strictly essential for dApp development—but they hold strong potential to become core elements of future development stacks. As such, they represent highly promising areas for investor attention.
(1) Sidechains
Notable use cases on the BTC network include Drivechains and Liquid. Within the Ethereum ecosystem, key developments are SKALE (built on the Plasma framework), recent rollup proofs launched by the Ethereum Foundation, and Cosmos Ethermint.
(2) Payment Channels and State Channel Networks
Blockstream launched the Lightning Network in 2015. In the Ethereum ecosystem, notable examples include Raiden, Loom, and Celer.
(3) Interledger Protocol (ILP)
Ripple Labs uses ILP to interconnect banking systems across its products. Kava leverages ILP technology atop Cosmos to build a DeFi platform supporting XRP, BNB, ATOM, and other assets.
(4) Immutable Structured Databases
Teams such as BigchainDB, OrbitDB, and Bluezelle are building immutable structured databases as permissionless, standalone chains. Given the performance benefits of structured databases, developers may choose to adopt these systems natively—for instance, SKALE might integrate such open-source systems into its Plasma chains.
(5) Zero-Knowledge Proofs (ZKP)
The two most representative ZKP technologies are ZK-SNARKs and ZK-STARKs, with flagship projects being Coda and StarkWare, respectively.
IV. New Business Models Emerging in the Web 3.0 Ecosystem
The successive waves of blockchain innovation in recent years have spawned a range of new Web 3.0 business models. Some are entirely novel, built on foundational blockchain technologies like infrastructure and protocols. Others are innovative fusions that integrate blockchain and cryptographic principles with traditional Web 2.0 models.
1. Innovations Evolving from Traditional Internet Models
01
Distributed Content-Sharing Platforms — Content Monetization & Distribution
Web 2.0 Examples: YouTube, Medium, Tumblr, Netflix
Web 3.0 Examples: Steemit, Alis, HyperSpace, Flixxo
02
Decentralized Online Marketplaces
Web 2.0 Examples: eBay, Amazon, Taobao
Web 3.0 Examples: OpenBazaar, bitJob, CanYa
03
Blockchain-Based Digital Advertising
Web 2.0 Examples: Facebook Ads, Google AdWords
Web 3.0 Examples: adChain, AdRealm, Lydian
04
Decentralized Gaming Marketplaces
Web 2.0 Examples: Steam, Expekt
Web 3.0 Examples: Dmarket, GameCredits
2. Future Commercial Drivers of Web 3.0: Frontier Investment Directions
While the technology stack forms the skeleton of blockchain projects, tokens are the lifeblood that powers the ecosystem. This has given rise to tokenized business models, fundamentally reshaping traditional profit logic.
01
Dual-Token Model
Example: MakerDAO (Tokens: MKR/DAI)
02
Governance Tokens
Examples: 0x Protocol, Aragon, DAOstack
03
Tokenized Securities
Example: AlphaPoint
04
Transaction Feature Fees
Examples: bloXroute, Aztec
05
Technology-for-Tokens (Tech 4 Tokens)
Example: StarkWare
06
UX/UI Providers
Examples: Veil & Guesser, Balance
07
Specialized Network Services
Examples: Stake.us, CDP Manager, OB1
08
Liquidity Providers
Examples: Uniswap, Alekmi
V. Blockchain's Economic Paradigm Shift: The Investment Logic of Cryptoeconomics
1. The Crypto Era — Dawn of the "Post-Data-Oligarch" Age
Looking back at the IT market's evolution over recent decades, a clear pattern emerges in each major cycle: decentralization → expansion → consolidation. Following the mobile internet era, the next major wave is the Crypto Era—a "post-data-oligarch" age defined by open data and information democratization.
This era began quietly in 2009 with Satoshi Nakamoto's creation of BTC. In this new paradigm, user data will no longer be monopolized by corporate giants. Privacy and security will be enhanced, with data stored in a decentralized, censorship-resistant, and tamper-proof manner—returning full control to users.
In the Web 2.0 era, user data is fragmented and siloed within various centralized companies. For instance, music platforms like NetEase Cloud Music, Xiami Music, and Spotify cannot share user playlist data. This cutthroat competition ultimately burdens users, as seen when Xiami Music was acquired and users had to manually export their playlists item by item.
Product-centric Web 2.0 services often neglect user data experience, focusing instead on building proprietary moats. Platforms like Google and Facebook offer "free" services but monetize user data and behavior through targeted ads, effectively compromising privacy.
Web 3.0 dismantles this product-centric model. Restructured on blockchain platforms, data usage and management rights are returned to users. Individuals can explicitly authorize specific entities to access their data, with a guarantee that a significant portion of the derived value flows back to them. In Web 2.0, using Baidu and Taobao means both companies hold extensive profiles of your searches and behavior—profiles you, the data owner, cannot access or benefit from. If these were blockchain-native companies, you would hold an identical copy of your user profile, granting you full ownership and control.
2. The Crypto Era Through the Lens of Techno-Economic Paradigm Shifts
Venezuelan economic theorist Carlota Perez studied technological revolutions since the Industrial Age, proposing the theory of techno-economic paradigm shifts and "great surges." She argues each revolution follows a cycle: Irruption (Explosion), Frenzy (Mania), Synergy (Coordination), and Consolidation (Integration).
As Figure 5 illustrates, our current trajectory aligns with Perez's model. The crypto-token market's Irruption began with BTC in 2009, reaching an irrational Frenzy in 2017-2018. The bubble peaked in early 2018 before collapsing later that year. As 2019 draws to a close, we anticipate that after a return to rationality, 2020 will bring industry recomposition and synergy, leading to a stable Consolidation phase.
3. Disruptive Innovation in the Crypto Era: Cost Structure and Value Distribution
In the coming Crypto Era, crypto-tokens will use universal financial incentives to replace the centralized information processing of internet giants, drastically reducing the cost of building and scaling information networks. But how exactly do crypto-networks achieve this?
We apply Joel Monegro's "Web 2.0 vs. Crypto-Service Model (Web 3.0)" framework, comparing them across two axes: mode of production (centralized vs. decentralized) and data custody (custodial vs. non-custodial).
As shown in Figure 6, the Web 2.0 model features centralized production costs and centralized value distribution. Entities like Google or Facebook manage the entire service lifecycle and control all user data. They bear all production costs (e.g., data centers, R&D) and, consequently, capture the vast majority of the value extracted from user information and behavior.
The crypto-service model (Web 3.0) combines decentralized production with non-custodial data. Crypto-networks use shared cryptoeconomic protocols to incentivize independent nodes to "peer-produce the service," distributing production costs across a broad base. Think of it as a "Digital Franchise Agreement." This model allows crypto-networks to achieve global scale akin to McDonald's, but governed cooperatively in digital form. Extending the principle that "value follows cost," we can view distributed cost structures as distributed investment. Crypto-networks push costs to the periphery, coordinating them via tokens. Open-source contributors and node operators absorb development costs; users assume responsibility for their own data; and token usage introduces decentralized capitalization. Anyone who purchases, holds, or uses a network's token continuously capitalizes it, bears a share of its capital costs, and stands to benefit from token appreciation as the network grows.
Per Joel Monegro's theory, Web 3.0's advantage lies in its more decentralized cost and value structure. Under classical economics, where value flows to where costs are incurred, Web 3.0's model ensures data value is distributed more broadly among all participants.
VI. IOSG Ventures' Long-Term Investment Thesis
01
Early Stage — Identifying Opportunity
Our deal sourcing and pipeline selection are driven by academic-industry research and developer community needs. As the Web 3.0 cycle unfolds, distributed systems, cryptography, and smart contracts are entering mainstream life, fueling speculative frenzy. Investment capital (speculative value) often floods in faster than productive capital (utility value), inflating asset prices until a correction. Yet, the underlying technologies become the new baseline, spawning numerous platform-layer applications that define vertical niches. Capturing both industrial and investment value across the full cycle is our core goal. In early-stage screening, we prioritize projects that meet three criteria:
(1) Decentralized, frictionless, open protocols (emphasizing scalable adoption, security, and consensus);
(2) Scarce token economics designed to coordinate community networks (featuring fair distribution rooted in economic theory and real-world utility that confers intrinsic value);
(3) Decentralized protocols paired with user-friendly UI/UX products that meet—or even create—user demand while enhancing experience.
02
Mid-to-Late Stage — Sustainable Co-Growth with Portfolio Companies
IOSG believes in forging tight, community-based partnerships with founding teams. We selectively invest in projects where we can collaborate closely with core developers to co-build decentralized ecosystems, striving to become valuable community members. This aligned methodology offers key advantages:
(1) We evolve alongside entrepreneurs, refining our strategies. An open culture of knowledge-sharing and clear industry insights helps attract top founders and fosters strong portfolio communities.
(2) We value the long-term advantages early founders bring, particularly their direct support in protocol design, economic modeling, growth strategy, and community governance. Selecting founders with strong leadership and community skills is crucial. Given the open-source nature of crypto-networks, competitors can fork the entire service. If sub-community initiators successfully recruit members to build independent networks, the original protocol risks losing early momentum.
(3) Open, transparent, and collaborative governance is vital. Projects like Ethereum and MakerDAO proactively publish competitor information, providing public context. Involving the community in protocol design and decision-making—empowering them through effective governance mechanisms—is key to building loyalty and active participation.
VII. Appendix — References
[1] Max Mersch. Which New Business Models Will Be Unleashed By Web 3.0? [EB/OL]. https://medium.com/fabric-ventures/which-new-business-models-will-be-unleashed-by-web-3-0-4e67c17dbd10, 2019-04-25.
[2] Gavin Wood. Why We Need Web 3.0 [EB/OL]. https://medium.com/@gavofyork/why-we-need-web-3-0-5da4f2bf95ab, 2018-09-13.
[3] Max Mersch. An (Entrepreneurial) Investor’s Take on the Utility of Tokens beyond Payment [EB/OL]. https://medium.com/fabric-ventures/an-entrepreneurial-investors-take-on-the-utility-of-tokens-beyond-payment-ccef1d5bb376, 2018-07-02.
[4] Trent McConaghy. Blockchain Infrastructure Landscape: A First Principles Framing [EB/OL]. https://medium.com/@trentmc0/blockchain-infrastructure-landscape-a-first-principles-framing-92cc5549bafe, July 15, 2017.
[5] Josh Stark. Making Sense of Web 3 [EB/OL]. https://medium.com/l4-media/making-sense-of-web-3-c1a9e74dcae, June 7, 2018.
[6] Aashish Sharma. The Web 3.0: The Web Transition Is Coming [EB/OL]. https://hackernoon.com/the-web-3-0-the-web-transition-is-coming-892108fd0d, August 24, 2018.
[7] Smit Maurya. Embracing Web 3.0: The New Internet Era Will Begin Soon [EB/OL]. https://hackernoon.com/embracing-web-3-0-the-new-internet-era-will-begin-soon-630ff6c2e7b6, January 22, 2019.
[8] Kyle Samani. The Web3 Stack [EB/OL]. https://multicoin.capital/2018/07/10/the-web3-stack/, July 30, 2018.
[9] Nic Carter. Visions of Bitcoin [EB/OL]. https://medium.com/@nic__carter/visions-of-bitcoin-4b7b7cbcd24c, July 30, 2018.
[10] Uri Klarman, Soumya Basu, Aleksandar Kuzmanovic, et al. bloXroute: A Scalable Trustless Blockchain Distribution Network WHITEPAPER [R]. Evanston, Illinois, United States: bloXroute Labs Inc., 2018.
[11] Steve Ellis, Ari Juels, Sergey Nazarov. ChainLink: A Decentralized Oracle Network [R]. Grand Cayman, Grand Cayman: Chainlink, 2017.
[12] Kerman Kohli. What's MakerDAO and what's going on with it? Explained with pictures. [EB/OL]. https://hackernoon.com/whats-makerdao-and-what-s-going-on-with-it-explained-with-pictures-f7ebf774e9c2, March 11, 2019.
[13] Joel Monegro. Web Vs. Crypto Service Models [EB/OL]. https://www.placeholder.vc/blog/2019/8/19/web-vs-crypto-service-models-cost-structures-and-value-distribution, August 19, 2019.
[14] Carlota Perez. Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages [M]. Cheltenham, United Kingdom: Edward Elgar Publishing Ltd, 2003: 18.
[15] Kerman Kohli. What's MakerDAO and what’s going on with it? Explained with pictures. [EB/OL]. https://kermankohli.com/post/2019-03-13-makerdao-whats-going-on.html, March 13, 2019.