Crypto for Advisors: Web2 to Web3

In Ask an Expert, A. Rafay, from Zignaly, answers questions about on-chain fund management.

–S.M.

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How the Marriage of Web3 and Web2 Gives Birth to Mass Adoption in Crypto

In 2021, we’ve witnessed substantial progress in the crypto sphere with the introduction of spot Bitcoin and Ethereum ETFs. While this development is viewed as a move towards broader acceptance, it’s essential to remember that authentic adoption relies on actual usage on the blockchain network, rather than mere ownership. Onboarding users is an intricate process, even when incentivized by tokens. Newcomers are faced with complexities like setting up wallets with lengthy seed phrases and acquiring cryptocurrencies for gas fee transactions. Additionally, skepticism surrounding blockchain security and fraud concerns have deterred many potential adopters.

Three rapidly expanding blockchain networks are tackling these issues by merging the advantages of Web2 and Web3. This fusion enables a smooth, Web2-style sign-up process, while granting users the perks of self-ownership characteristic of Web3.

Base: Web 2.5 to Web 3

If you possess a Coinbase account, bravo! You’ve already entered the realm of Web 2.5 by purchasing crypto via a centralized platform. Decentralized exchanges and other on-chain activities can deter newcomers due to their intricacy. However, Base – a creation of Coinbase – is designed to transition Web 2.5 users towards Web3. Accessible through Coinbase’s mobile and web apps, Base offers seamless fiat on and off ramps for the exchange. Coinbase’s enhanced UI features, such as Smart Wallet for streamlined login and Magic Spend to mask gas fees, simplify the process. Furthermore, Base is cultivating a bustling ecosystem with DeFi projects like Aerodrome and Moonwell, and social apps like Degen, making on-chain interactions more engaging and lucrative.

Solana: Web3 to Everywhere

Solana, renowned for its fast-performing blockchain, is making great strides towards widespread use with Blinks. Blinks simplifies on-chain transactions into easy-to-use URLs that can be integrated into any traditional web business. By clicking a URL, users can execute on-chain transactions without the need for intricate wallet configurations. This facilitates an easier process for Web2 businesses to incorporate blockchain technology into their current operations.

The Internet, born in the 70s, didn’t become widely used until the turn of the millennium. Now that we’re 15 years into Bitcoin‘s existence, the merging of Web2 and Web3 is rapidly increasing the acceptance of blockchain technology. The “on-chain” experience is the latest evolution of being online.

– Kelly Ye, portfolio manager and head of research, Decentral Park Capital

Ask an Expert

Q: Why would fund managers adopt on-chain fund management?

Initialy, through on-chain fund management, fund managers are able to monitor transactions in real-time with transparency. This not only minimizes the occurrence of fraud and errors but also strengthens investor trust which is crucial for sustained use.

Smart contracts and on-chain transactions streamline the process of managing funds and handling administrative tasks, leading to substantial cost savings and enhanced efficiency. In comparison to conventional methods, on-chain systems excel in facilitating securities transfers and payments with greater ease and speed.

In contrast to traditional finance (tradFi) equivalents, on-chain assets boast the advantages of being borderless, accessible around the clock, and providing swift settlements.

Fund managers are granted the opportunity to expand their investment horizons beyond traditional assets, encompassing innovations such as tokenized real estate, NFTs (Non-Fungible Tokens), and emerging revenue-generating sectors like Decentralized Finance (DeFi) and yield farming. This expansion leads to the creation of unique financial products and services that were previously unimaginable in conventional fund management.

Furthermore, on-chain financial management systems offer the same level of security as the base blockchains themselves. By allowing companies to hold their own funds, rather than relying on external parties, these systems enhance trust in on-chain finance solutions.

“What effect will the emergence of on-chain asset management have on the operations and revenue streams of conventional financial organizations?”

A: Sooner or later, they will also come on-chain.

In today’s financial landscape, traditional institutions can no longer disregard transparency or maintain exorbitant costs. To remain significant and contest with modern competitors, they need to embrace novel and advanced technological solutions.

I, as an analyst, am observing a significant development in the financial sector. BlackRock’s BUIDL fund is leading the charge in the tokenization movement, surpassing $500 million in value. Simultaneously, VanEck and 21Shares, among others, are actively advocating for Solana Exchange-Traded Funds (ETFs), following the successful launch of Bitcoin and Ethereum ETFs.

A significant number of people are increasingly requesting tokenized assets, advanced smart contracts, autonomous AI systems operating on a decentralized platform, and similar technological innovations.

– A Rafay, co-founder, Zignaly.

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I’d like to share my perspective on this matter, having spent several years immersed in the cryptocurrency space as a journalist for CoinDesk. It’s important to clarify that the opinions I express here are my own and do not necessarily represent those of CoinDesk or its affiliates.