Introduction
The Web3 business model has been hailed as a revolutionary approach to the internet, promising decentralization, increased user ownership, and innovative revenue streams.
However, critics argue that this model is fundamentally flawed, leading to the creation of useless products, bankrupt businesses, and disillusioned stakeholders. This article examines the execution of the Web3 business model, its inherent issues, and potential solutions to improve the ecosystem.
The Current Web3 Business Model
The typical Web3 business model follows a pattern:
1. Raise capital through a token
2. Use the token to over-leverage the company
3. Build a high-risk product
4. Go bankrupt when the token value plummets
This model allows founders to raise funds without providing value, gain validation without validating ideas, and receive money without earning it. Consequently, companies go bankrupt, employees lose their jobs, and customers lose everything.
Issues with the Web3 Business Model
1. Lack of Value Creation
Many Web3 projects fail to deliver value at scale, focusing on decentralized ownership without considering the practical applications and benefits for users. This leads to the creation of products and services that do not attract significant investments or scale effectively.
2. Over-Leveraging and High Risk
The Web3 model encourages companies to over-leverage themselves by raising excessive capital through token sales. This approach can lead to unsustainable growth, increased risk, and eventual bankruptcy, as seen in the case of Compute North, a crypto mining services firm that filed for bankruptcy protection due to its inability to meet debt obligations.
3. Regulatory Uncertainty
The lack of clear regulations for Web3 technologies creates uncertainty for businesses, which may face unexpected enforcement actions from regulatory agencies. This uncertainty can hinder innovation and discourage companies from adopting Web3 technologies.
4. Security Vulnerabilities
Web3 projects are susceptible to various security risks, including smart contract logic hacks, flash loan attacks, and crypto-jacking. These vulnerabilities can result in significant financial losses and reputational damage for businesses.
Solutions for a Better Web3 Business Model
1. Focus on Value Creation
Web3 businesses should prioritise creating value for their users by developing practical applications and addressing real-world problems. By focusing on delivering tangible benefits, companies can attract investments and scale effectively.
2. Responsible Fundraising and Risk Management
Companies should adopt responsible fundraising practices, avoiding over-leveraging and ensuring that they have a viable business model before raising capital. Additionally, businesses should implement robust risk management strategies to mitigate potential security vulnerabilities and protect their users.
3. Regulatory Compliance
Web3 businesses should proactively engage with regulators and work towards establishing clear guidelines for the use of Web3 technologies. This will help reduce uncertainty and foster a more stable environment for innovation.
4. Embracing Hybrid Business Models
Companies can explore hybrid business models that combine the best of Web2 and Web3 capabilities, leveraging the strengths of both approaches. This can lead to more sustainable growth and improved user experiences.
Conclusion
The current Web3 business model has significant flaws that can lead to the creation of useless products and bankrupt businesses. However, by focusing on value creation, responsible fundraising, regulatory compliance, and embracing hybrid business models, companies can overcome these challenges and build a more sustainable and successful Web3 ecosystem.
Written by Agbo Obinnaya.
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