A web3 recap: Q1 2023

Hey friend 👋,

I’ve been meaning to write a Q1 recap of the State of web3 - at least from what I’ve seen and heard.

It’s crazy to know a quarter of the year has already gone by.

Personally, I’ve enjoyed my ‘quarter-sabbatical’ / ‘funemployment’ time - I left my previous company after nine years and have enjoyed taking a break this quarter (although the bank account isn’t as healthy!), as well as experimenting with a few other projects (refreshingly outside of the laptop!).

I’m excited to share more about my future updates - expect to hear something in the next couple newsletters :)

Without further ado, let’s get to it!

Recap #1 - Crypto Banks Took a Tumble

In a frantic and chaotic period in February, we started to see the domino collapse of three crypto banks - Signature, Silvergate, and Silicon Valley Bank.

Each one had strong ties to the crypto world, connecting the traditional banking system to the land of crypto (by allowing companies to exchange customers’ digital assets into real dollars).

Why does this matter?:

These bank collapses shook confidence in public markets and in the crypto industry - governments decided to crack down on banks and financial services companies that partnered with crypto firms and increased the number of obstacles in making the crypto industry become more credible.

What happens next?

I’d say we’re in for a bumpy ride for the rest of 2023 - not just because of further bank collapses; but with the macroeconomic environment (high inflation, high interest rates etc) in a state of flux and governments around the world taking a hostile stance towards web3, I think we’ll see things get worse before they get better.

Recap #2 - L2’s outpacing L1’s

Layer 2’s (or L2’s) like Arbitrum and Optimism, sit atop Ethereum (an L1). They provide faster and less expensive transactions for application developers.

The average Ethereum transaction cost about $2.60 as of this writing, whereas on Arbitrum it costs $0.07, a 97% saving.

In the long-term, lower prices will drive more activity and lead to a greater adoption of web3 technologies.

In September, L2s processed about 30% of Ethereum transactions. Six months later, that figure is 67% according to Dune.

This shows how popular L2’s currently are, and it’s no surprise to see many developers gravitating to these ecosystems.

What happens next?

I predict this trend will continue - I’m pretty surprised by the amount of growth in such a short space of time that L2’s have had, and it’s one I’m going to pay a lot more attention to for the coming quarter (s/o Tom Tunguz’s analysis on the state of web3!).

Recap #3 - Ordinals On The Rise

In a nutshell, Ordinals are boomin’.

If you have no idea what Ordinals are, here’s the primer:

• Ordinals are Bitcoin NFTs. These are digital artifacts, or a way to inscribe digital content on the Bitcoin blockchain.

• It was launched in Jan 2023 with the goal of creating an on-chain presence of a piece of art, text or video.

• The number of inscriptions has been doubling every week, but the number may even be higher (the infrastructure hasn’t quite caught up yet).

Over the last 3 days, 162,00+ Ordinals have been inscribed. 72,000+ of these were inscribed on Sunday alone (a new daily record).

The number of inscriptions (new submissions to the Bitcoin blockchain) is on a hockey-stick curve right now:

So what’s causing this?

• Growth of new collections: Many of NFT’s biggest names (like Yuga Labs, DeGods, and others) have launched their own collections.

• A place to buy, at last! It took a while, but a few of crypto’s largest NFT marketplaces have finally launched an Ordinals marketplace, which means people finally have a place to buy/sell their assets.

So what? People are beginning to look at Bitcoin like never before. It is hard to say that Ordinals are just a fad at this point, which reopens the discussion around the use cases of Bitcoin.

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So those are my three standouts from Q1 - I’m sure there’s loads I’ve missed or haven’t given an honorary mention towards, but I’m keen to see more projects come to life and the industry moving forward.

Onward 🚀

🔗 Links Of The Week

📝 2023 State of Crypto (a16z)

The benefit of sending this newsletter out late - I caught this juicy report from a16z on the state of the industry - TLDR: blockchains have more active users, DeFi/NFT activity is rising again as new use cases emerge, the no. of active developers in the crypto industry is at approx 60k, blockchains are scaling through new solutions and the US is falling is behind in web3.

🤷🏻‍♂️ No One Cares

A great Sunday post by Jason Levin to remind all of us (especially me!) that no one actually cares enough to make fun of you. We don’t need to care about people’s opinions - inevitably, people will shit on your content, but most people will just scroll by, too focused on their own lives to care about you and your world.

🏎 How Mercedes F1 Boss Toto Wolff Became a Billionaire

Great post by Huddle Up on how Toto Wolff became the most influential man in F1 - I don’t follow F1 (even though I’m keen to watch Drive to Survive, I just don’t want to get sucked into another Netflix binge) but I’ve heard this guy is a legend. There’s a great story in the article about how he cares about the little things - how the bathroom should be cleaned, while actually showing the hygiene manager exactly how he wants it done everyday. I make it sound like he’s a micro-manager, and he might be one (I have no idea), but his track record speaks for itself (7 championships in 8 years in the 2010’s).

Until next time 👋

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Fahim