tech
Web3: Ownership, tokens, and practical risk
Examines Web3 ownership claims, token funding, interoperability, and risk, and separates holding portable assets from owning a company or network.
Web3 is a loose label for internet applications that use blockchains, tokens, and user-controlled wallets. Some designs give users portable assets or a role in governance, but that is not the same as owning a company or network.
Its boundaries and value remain contested.
Parts of this essay were drafted with AI assistance.
Reader's map: this piece braids four threads: web history, the (contested) Strauss-Howe generational frame, market observations, and open crypto advocacy. They're labeled as they appear so you can weigh them separately. Market figures are a late-2021 snapshot.
The evolution of the web
We live in a predominantly digital era, and most websites today still follow the Web 2 business model, where advertising and marketplace businesses monetize user attention, data, or transactions.
Web 2 supplied the infrastructure and business context from which Web3 emerged, including disputes about privacy, moderation, and content distribution.
This stems partly from concentrated intermediaries with strong network effects.
They govern news feeds, browser searches, and how people connect and spend their time online.
The promise of Web3
Throughout this deep dive series, different eras of the Internet have been viewed through the Strauss-Howe Generational Theory, which details a recurring cycle of archetypal generations. As noted in the earlier installments, it is a contested interpretive framework used here as a lens, not a law.
The theory claims that historical context shapes generational tendencies. This essay does not treat those tendencies as measured facts about individuals.
Artists and heroes
According to the theory, the generation known as Artists grew up during the Crisis period (2001–present), and we left off with them butting heads with the Hero generation who grew up during the Unraveling Period (1982–2000).
The original version mapped technology executives to the Hero archetype and younger Web3 participants to the Artist archetype. That is an interpretation, not evidence that age determines a person's view of decentralization. Incentives, ownership, law, culture, and technical tradeoffs offer more direct explanations.
Economic context
Assets and valuations
This late-2021 snapshot coincided with record prices for many risk assets.
From a traditional economic standpoint, declining interest rates reflected a mix of inflation, growth, policy, demographics, and saving. The trend alone did not prove fragility.
Late-2021 valuations and low yields helped direct speculative capital toward new asset classes, including crypto.
The role of cryptocurrency
Cryptocurrency innovation
One method of working around the present system is decentralizing control and building new assets.
Crypto projects combined programmable settlement, digital scarcity, and online coordination in new ways. A token's legal and economic character depends on its rights, distribution, marketing, and jurisdiction. Technical novelty does not place it outside securities or consumer-protection law.
User-owned networks
The early web combined open standards with ambitions for broad access to information. Later application layers concentrated users, data, and distribution in a small number of companies.
Web3 projects aim to reduce platform dependence through portable assets, wallet-based identity, and open protocols. Whether that produces a more equitable system depends on token distribution, governance, access, and design.
Buying a public share and using an open network involve different barriers, rights, and risks.
One way to test this concept is a thought experiment: imagine being paid in Facebook shares based on your value to the platform.
Although it can be difficult to quantify value, such a model could reward contributors. It could also encourage spam, expose users to price risk, and conflict with securities, tax, and governance rules.
Earlier blockchains supported limited scripting. Ethereum popularized a general-purpose smart-contract platform and made token issuance easier.
The ERC-20 and ERC-721 standards gave applications shared interfaces for fungible and non-fungible tokens.
ERC-20 and ERC-721 standards
ERC20 tokens enabled anyone to deploy a fungible token to the Ethereum blockchain, and ERC721 tokens enabled anyone to deploy a non-fungible token (NFT) to the Ethereum blockchain.
These Ethereum standards inspired analogous token interfaces on other networks. Solana uses a different token program rather than ERC-20 or ERC-721 itself.
In each of these cases, users can hold an asset or governance token associated with an application. The token may convey no claim on cash flows, intellectual property, or legal ownership.
Open digital-asset standards existed before Ethereum, but ERC-20 and ERC-721 made composable issuance common within a shared smart-contract environment.
Cryptocurrency and equity
Portfolio allocation depends on the investor and is outside this essay. The important distinction is that a share is a legal claim on a company, while a token's rights vary by design.
Some tokens have little use beyond speculation. Native assets on blockchain networks may also pay fees, secure consensus, or coordinate governance.
Holding ETH, SOL, or AVAX gives a user a transferable asset used for fees and, under proof of stake, participation in validation. It does not confer corporate equity or a legal ownership percentage in the network.
Tokens, such as the ones conforming to the ERC20 standard, are built and deployed atop these networks.
Each token has distinct rights, supply rules, control points, and distribution.
This is a historical market discussion, not investment advice.
Innovations in fundraising
Fundraising innovation
Token sales introduced new fundraising and distribution mechanisms.
Companies can fund themselves through revenue, debt, grants, private investment, or public markets.
Mastercoin's 2013 sale is commonly described as the first initial coin offering (ICO). The model expanded during the 2017 ICO bubble.
Token sales lowered some fundraising barriers while often providing less disclosure and fewer legal rights than regulated securities offerings. Paid promoters and fraudulent projects exploited that gap.
The ICO industry has since evolved into multiple variations of ICOs that each serve different purposes.
Their long-term role depends on securities law, disclosure, investor protection, and whether projects deliver after the sale.
Paid promotion and undisclosed conflicts were recurring problems. A public endorsement is not diligence; readers should check compensation, token rights, distribution, liquidity, and legal disclosures.
ICO variations
The ICO name borrowed from initial public offerings, but a token sale does not necessarily convey equity, audited disclosure, or the protections of an IPO.
NFTs
NFTs can represent identifiers, collectibles, tickets, memberships, or claims defined by an application.
Projects used NFT sales for fundraising, but buyers often received no equity, repayment right, or promise of delivery.
NFTs included more than PFPs, though PFPs were the runaway trade of the late-2021 moment this snapshot captures.
Aurory
In late 2021, Aurory sold an NFT collection called Aurorians on Solana.
The mint created sale proceeds and the collection's contract specified secondary-sale royalties. Marketplace support and trading activity determine whether royalties are paid. Holding an Aurorian created access to a community and a speculative asset, not equity in the developer.
The Infinite Garden
The documentary Ethereum: The Infinite Garden also used NFTs associated with the film to raise production funding.
3LAU
Electronic music producer 3LAU sold NFTs associated with a previously released album.
He later helped launch Royal.io, which experimented with sharing music-related economic rights through tokens.
Blockchain and project grants
Blockchain foundations, companies, and DAOs used grants to fund ecosystem work.
Grants have long funded work in academia and open-source software. DAOs added public proposals, token voting, and on-chain treasuries to some programs.
Gitcoin
Gitcoin was designed to enable the funding of public goods.
These goods are often open-source software, so many grants go to coders, developers, and founders.
Gitcoin's governance and grant mechanisms changed over time. In this snapshot, GTC holders participated in governance while individual grant rounds used their own eligibility, matching, and review processes.
Public goods are commonly defined as non-rivalrous and non-excludable. They can still be produced by a nonprofit, company, informal group, or individual.
Gitcoin has used quadratic funding, which gives matching weight to the number of contributors as well as the amount contributed.
That weighting remains subject to identity and collusion controls.
Treasury grants and DAOs
DAOs were still experimental in this snapshot.
Their legal status and funding mechanisms varied by jurisdiction, although some have successfully implemented payments to participants and projects in their communities.
NounsDAO was one visible example.
NounsDAO was designed to create one Noun per day while its contracts and community continue operating.
Holding a Noun conveyed governance rights under the project's contracts.
Smart contracts governed auctions, treasury execution, and voting. Proposals and social decisions still depended on people and interfaces. Auction proceeds were deposited into the community treasury, which held funds collected from auctions. Its balance and transfers remain publicly inspectable rather than constituting recurring revenue in a stable unit.
The DAO used treasury funds for projects related to the Nouns community.
They also decided to donate 30 ETH to charity. The transactions remain inspectable on the Nouns legacy treasury address, which the official Nouns contracts repository identifies as the original timelocked treasury.
Publishing every government payment on a public ledger would improve some forms of auditability while creating serious privacy, security, and legal problems.
NounsDAO offered a concrete experiment in public treasury governance.
Open source and interoperability
Open source
Public blockchains serve as settlement layers for Web3 applications. Their protocol clients are often open source, but not every client, smart contract, interface, or service publishes source under an open license. Deployed bytecode and transaction history may be public even when readable source is unavailable.
Money legos
Interoperability lets compatible contracts and applications call one another or use shared token standards.
Users can combine compatible protocols without one central platform approving each connection. They still trust contract code, oracles, governance, assets, interfaces, and the underlying chain.
Using DeFi, investors have many options, from generating a yield on a borrowed asset while maintaining exposure to the collateral to supplying liquidity to an AMM that rewards them with trading fees.
Some tokens and protocols are interoperable; support varies by chain, standard, application, and bridge.
Below is a simple example of how to do so.
Stake SOL using Marinade and receive mSOL.
Deposit SOL/mSOL into a liquidity pool and earn trading fees.
In this example, staking rewards accrue through mSOL and the pool may earn trading fees. The position also faces smart-contract risk, impermanent loss, validator risk, depegging risk, and changing incentives.
Wallet dashboards
Money managers and banks custody assets and need ways of keeping tabs on them.
Financial dashboards can help a user inspect positions across public ledgers. They do not replace deposit insurance, tax records, identity services, credit underwriting, or financial advice.
In Web 2 and conventional finance, you can connect your banking and investment accounts to dashboards like Mint and Copilot, but you must divulge all your accounts' information.
In Web 3, you can have multiple wallets operating across multiple chains doing complicated activities such as providing liquidity, borrowing, or using synthetic assets and displaying them within one interface.
When you connect to a multichain wallet dashboard like DeBank, your activity will be present, filterable, and graphically represented.
Other dashboards in this late-2021 snapshot included ApeBoard, YieldWatch, and SonarWatch. Product availability can change.
A read-only dashboard does not create self-custody; the wallet does. The service can read the public history tied to an address, which may reveal balances, counterparties, and behavior. Connecting a wallet can add device and network metadata depending on the service.
Forks
Many DeFi protocols began as forks of existing open-source code with changed parameters, incentives, or features.
Forking can speed iteration, but copied code can retain old bugs or introduce new ones. A familiar codebase does not make a new deployment trustworthy.
Forks can increase competition, fragment liquidity, or create short-lived copies.
Uniswap was a leading decentralized exchange by volume during DeFi Summer in 2020.
A competitor called SushiSwap forked the code and added incentives through SUSHI tokens.
Liquidity moved to SushiSwap during the incentive campaign. Uniswap later launched UNI and distributed it to qualifying historical users and liquidity providers.
UNI and SUSHI became actively traded governance tokens. Their market prices did not measure protocol revenue or the value delivered to users.
Generating value
Liquidity pools
The earlier liquidity-pool essay covers the mechanism in more detail.
Liquidity pools can let a wallet supply assets for other users to trade. Access may still be restricted by an interface, token contract, protocol, or law.
In traditional finance, these liquidity providers are market makers.
These pools generate trading fees transmitted to the liquidity providers and, in many cases, to a community-governed treasury.
The fee stream gives retail users direct market-making exposure, but it is not a risk-free yield. Traditional markets also offer retail-accessible funds and products with market-making or lending exposure.
Products like Token Terminal apply financial ratios to protocol revenue and token valuations. Those ratios depend on how fees, incentives, treasury income, and token-holder claims are defined.
Open code and competitive moats
Industries have been defined by centralized intermediaries building and investors obsessing over economic moats, which are facets of a business that separate it from others.
In theory, moats exist in Web 3 but don't serve the same purpose as in Web 1 and 2.
Open code can reduce the protection offered by proprietary implementation, while liquidity, brand, distribution, governance, data, and integrations can remain strong moats. Public source improves the opportunity for review, not the certainty that capable reviewers will find every defect.
Bug bounties can reduce risk when researchers disclose defects before attackers exploit them.
Security researchers and attackers
In October 2021, a researcher disclosed a Polygon Plasma Bridge bug that Immunefi reported put roughly $850 million at risk. Polygon awarded a $2 million bounty.
The separate Polygon disclosure illustrates the intended bug-bounty model: a researcher reported a vulnerability and received a published reward.
The contrast does not remove the underlying risk: deployed contracts can expose large pools of assets to one implementation defect.
Web3 remained a small part of the internet
Web3 remained a small part of internet activity in this late-2021 snapshot. It offered real experiments in settlement, assets, governance, and funding, mixed with debt-fueled speculation, fraud, concentrated ownership, and fragile software.
Some projects align with the early web's open-protocol ideals. Others reproduce platform concentration through hosted interfaces, venture ownership, token distribution, or a small validator set.
Adoption depends on user value, security, usability, law, cost, and competition with existing systems. Skepticism is not proof of eventual success or failure.
Four measures would show whether Web3 had moved beyond a niche: monthly active non-custodial wallets, the share of creators paid without a platform intermediary, non-speculative on-chain transaction volume, and DAOs that ship through a full market cycle. By those measures, Web3 remained a small but active part of the internet in this snapshot. Whether it grows is an empirical question.