Financial applications currently lead adoption, but the future of non-financial Web3 depends on creating products users actually need.
Crypto venture capitalists openly disagree about whether nonfinancial Web3 applications have a genuine future. The debate revolves around whether digital identity platforms, blockchain gaming, and decentralized social media failed because people didn’t want them, or whether they are still early-stage ideas that need more time to grow.
The conversation reflects deeper divisions among investors over where crypto innovation should head next. Public disagreement arose when Chris Dixon, managing partner at venture capital firm a16z crypto, wrote an article arguing that external factors had slowed the growth of nonfinancial crypto applications. For Dixon, years of scams, exploitative behavior, and severe regulatory pressures discouraged developers and users from fully adopting Web3 projects outside of finance.
Those nonfinancial applications comprise decentralized social networks, digital identity frameworks, blockchain-centric media platforms, digital ownership mechanics, and Web3 video games. Advocates of the concepts argue that blockchain could empower users to have more control over their data, online experiences, and connections than centralized companies. But Dixon’s explanation doesn’t resonate with everyone. Haseeb Qureshi, a managing partner at crypto venture firm Dragonfly, vehemently disagreed.
These products, he argued, had failed primarily because users found them neither useful nor attractive. And in his reply, Qureshi explained that it wasn’t regulators or major crypto scandals that were the issue of concern, but poor product design and the absence of real demand. Many of those projects, in his view, “failed the market test,” so they didn’t address problems that interested people. That disagreement plays into the broader divide in the crypto investment world.
Several investors think tech is a very young venture that will take more time to mature, while others believe the market has already proven what works and doesn’t.
The disagreement is in part due to how venture capital firms manage investment timelines. A16z crypto, Dixon added, invests over the long term, with a typical expectation of delivering projects lasting 10 years or more before they succeed.
One also needs the patience to establish entirely new kinds of online platforms and industries. But, as Nic Carter, a founding partner at Castle Island Ventures, pointed out, venture capital firms generally don’t have unlimited time. Investors, too, generally needed to find promising markets more quickly than before — often within 2 to 3 years — to invest in them, he said. This puts pressure to support ideas that can scale quickly and generate early returns.
The time horizon gap also affects investors’ evaluations of Web3 projects differently. Longer-term investors are likely to be promoters of experimental ideas, such as decentralized social networks or identity systems, even if the initial momentum is lukewarm.
Other investors prefer sectors with strong existing demand and defined revenue prospects. This has been a more prominent issue as crypto’s venture capital funding ballooned in 2022.
It’s mostly invested in tokenized real-world assets (RWAs), which consist of physical or traditional financial assets (such as real estate and bonds) sold as digital tokens on the blockchain. Such initiatives are seen as most realistic and comparable to existing financial markets.
This disagreement is also mirrored in the types of projects different companies take up to support. The core of Dragonfly has been in financial use cases and technical design work to support blockchain-based financial systems.
Some of the investments include the Agora stablecoin and payments platform, the payments infrastructure company Rain, the synthetic dollar project Ethena, and the Monad blockchain network.
They resonate with Dragonfly’s view that financial applications are now the most realistic and valuable use of blockchain technology.
It has supported financial platforms such as Coinbase and the decentralized exchange Uniswap, and has also invested in nonfinancial projects. Friends With Benefits, a blockchain-based online community, World, a digital identity platform, and Yield Guild Games, a Web3 gaming network, are among them.
