Sky9 Capital Partner Niu Fengxuan: Discussing Web3 Reshaping Data Value

Author: Niu Fengxuan

Abstract:

In Web 2.0, your data is valuable but does not belong to you, and the value is not shared with you.
On-chain data is a gold mine; the more applications there are, the more data there is, and the larger the gold mine becomes.
In Web 3.0, your valuable actions will eventually be rewarded, and the carrier of value is your data, which also belongs to you.

In the world of Web 2.0, if you are the top Zhao Yun in Jing'an District, Shanghai, in Honor of Kings, having collected all skins, when you go to Eternal Return or Harry Potter: Magic Awakened, you can only start from scratch on a blank slate; no one knows you are a master player. If you are a somewhat famous uploader on Bilibili, you might find someone on YouTube using your name to repost videos.

If you want to transfer 5000 yuan from WeChat to Alipay, you find it impossible; you can only withdraw to a bank card and then recharge to Alipay. Every time you use a new product on a mobile website, you have to go through the tedious process of entering your phone number/email/user + password/verification code, and often when you use a product you rarely use for the second time, you still have to click to retrieve the password.

In the world of Web 2.0, every application spares no effort to lock in users, increase stickiness and retention, and build a moat around users and data to extract maximum value. As a user, although you gain the experience of using the product, you actually own nothing; all your data can vanish overnight.

Once the largest Chinese blog community, BlogCN, and the former campus network, not to mention the countless online games that have shut down. Essentially, user behavior and data are working for the company; when you checked the boxes for the "Service Agreement" and "Privacy Policy" during registration, you signed an extremely unequal contract, meaning your data belongs to the company and can be used and monetized at will. If one day we stop operating, sorry, the right to explain belongs to me; your account is gone, and your data is gone.

So, in Web 2.0, your data is valuable but does not belong to you, and the value is not shared with you.

Under the framework of Web 3.0 based on blockchain technology as the underlying layer, it seems to have taken a step forward. Blockchain is a public database where all applications read and write data. Due to current performance limitations and high interaction costs, applications tend to only put "high-value behavior" interactions on-chain, and this behavioral data is simply a gold mine.

Four years ago, it was still the ICO era and various public chains competing to make promises; the types of transactions on-chain were very singular, mostly token transfers. In the past four years, the application layer has witnessed the explosion of several tracks, from DeFi to NFT to GameFi, with a hundred flowers blooming, and thousands of applications recording diverse data on-chain.

The filtering/analysis/processing of this data can generate countless scenarios, from capturing trading opportunities to finding precise user address groups, to forming on-chain identities and social relationships; each of these is an opportunity worth over a billion dollars.

One is All

In my previous article "A Brief Discussion on My Understanding of NFT and Metaverse," I mentioned the interoperability brought by blockchain multiple times. From the perspective of data, interoperability is a great transformation unimaginable in Web 2.0.

A single address account can natively log into thousands of applications simultaneously, and the high-value behaviors generated by these applications are recorded under one account. For every on-chain interaction of an address, you can know whether this address (and the person behind it) is an early liquidity mining user in DeFi, an NFT collector, a DEX trading user, or a player of a certain GameFi, etc.

The user profile of an address can be completely described by these on-chain behaviors. In the world of Web 2.0, every footprint you leave on the internet is held by different companies; each company only holds a fragment of all your behaviors. The more businesses a giant company is involved in, the more fragments it holds, but it cannot piece together the whole picture.

On the blockchain, the full picture of an address is hidden in every on-chain interaction you make. Any person or organization can piece together your profile without permission; platforms like RSS3, Project Galaxy, and CyberConnect are organizing and presenting users' on-chain profiles and behaviors in different ways.

Where is the Value

Valuable actions receive rewards

In Web 2.0, if you create a game and want to attract users from Honor of Kings as seed users, is that possible? Even within Tencent, you might not get the resources and permissions you want. If you create a social product and want to attract a large number of Weibo users, is that possible?

On-chain, which address has played which game and spent how much money is clear at a glance. Which addresses have participated in YFI mining, Curve pre-mining, NFT trading can all be easily obtained. You can use a series of filtering conditions to find a list of seed users that meet your requirements, airdrop to them, give them some benefits, and attract them to use your product.

The value of a product comes from every user's every on-chain interaction, whether it's an NFT transaction or adding liquidity. If the value generated by these interactions is not recognized by the project party, it doesn't matter; other project parties will value the worth of these behaviors.

Recently, OpenDao airdropped $SOS tokens to Opensea users, which was quite interesting. My focus is not whether OpenDao can surpass Opensea as an NFT exchange through this operation (I think that is very difficult). Rather, even if your high-value behavior on Opensea does not receive the expected return (Opensea is likely to go the IPO route), others can still give it; $SOS is neither the first nor the last.

Previously, Rarible did this (giving to NFT holders, most early NFT holders obtained their NFTs through Opensea transactions), and there will be LooksRare and more in the future.

In every new project's token economic model, people will think about 1. How do I find the first batch of seed users to give them airdrops; 2. How do I reward users who provide value to my product? So on-chain, you can do whatever you want; your "high-value behavior" will eventually bring you "value."

Users who experienced the DeFi Summer of 2020 have likely received a plethora of airdrops from various projects in the past year; this is the reward brought by the value of your data. If you think that withdrawing all the balance from an address means that the account has no value, that understanding is incorrect; your on-chain footprints are the most valuable; please cherish every wallet address you have and do not lose them easily.

Traceable, Proofless Identity Value

If you are an old player of Legend of Mir 1, it is hard to prove that you once played or obtained rare equipment because the server has shut down and the data is gone. But if Cryptokitties shuts down its website years later, you can still use your Ethereum address to tell everyone that you bought a Christmas cat at the end of 2017.

On LinkedIn, you can package "made a few PPT slides" as "led a $500 million merger," but on the blockchain, if you boast that you are a DeFi big player/early user, whether you are genuine or not can be verified by looking at the address.

Last week, I received a resume -

No need for too many words; just check Opensea, RSS3, Mirror, and Cyberconnect to see what Dapps this brother has used and what NFTs he has bought over the past two years; whether he is a Crypto native person. On-chain data speaks louder than words. In this industry, I think LinkedIn can take a back seat.

This data not only authentically reflects a person's history and identity on-chain but can also natively establish social relationships and group dynamics. We currently have many groups still built on Web 2.0 applications like WeChat, Discord, and Telegram, such as DeFi enthusiast groups, NFT discussion groups, and large holder groups for certain projects.

In reality, many users in these groups may be unrelated to the theme; they may have never played DeFi or bought a certain project's token, yet they are in the group stirring up discussions.

If it were a community tool based on wallet address login, it could naturally establish groups based on certain filtering criteria, such as only addresses holding Punks or BAYC can join the NFT community.

For example, only addresses holding certain DeFi tokens that meet a certain quantity can join the DeFi community, or only those who have participated in more than three Snapshot governance votes can join the DAO community, etc. These entry thresholds can be automatically judged by reading the on-chain asset information and behavioral history of the address, without the need for proof.

If conditions are no longer met, users who do not meet the threshold can be automatically kicked out. Permission management can also be automatically elevated or downgraded based on on-chain data, without the need for administrators to set it manually. For instance, holding 100 tokens of a certain project can allow entry into a regular group, while holding over 100,000 tokens can automatically grant access to a VIP group, along with a rainbow-colored ID badge, etc. Many projects, such as ShowMe and Metalink, are exploring this direction.

Communities built this way are more transparent and efficient; everyone is a member who meets the group entry threshold, and this process is native, authentic, dynamically updated, and trustless.

Data-Driven Alpha

Every day, there are billions of dollars in token transactions and hundreds of millions of dollars in NFT transactions on-chain, and this information is public, making it easy to imagine how much Alpha can be mined from it.

Nansen.ai has achieved this to the extreme, iterating a product that generates tens of millions of dollars in revenue and is valued at nearly a billion dollars in just a year and a half. On-chain whale tagging, Smart Money tracking, chip flow and distribution under the Token God model, deep mining of NFT projects… Providing this information to an analytical user is like placing an ATM in front of them.

Above, I have only listed a few rapidly evolving scenarios; this is just the tip of the iceberg. The value of on-chain data as a gold mine has already been vividly demonstrated. In the future, we will also see the widespread application of on-chain data-based Credit Scores, decentralized identities in the metaverse, and data products that bring value to users from angles like Nansen.

In Web 3.0, on-chain data belongs to everyone, while also being readable by every person or organization, allowing everyone to capture value from this data. The way value is distributed is being reshaped. In the foreseeable future, when you use any application in Web 3.0, you will not start from scratch but will walk through each application with your address profile and tags; the carrier of value is your data, which also belongs to you.

AMA for Myself

Q: What about multiple addresses?

A: Many people change their address every time they play DeFi. One feasible solution is to bundle your multiple wallet addresses through signature verification within a DID framework, tagging/analyzing/calculating your identity based on these multiple wallet addresses. Spectral is using this method to create on-chain credit scores.

Q: The experience of these Web 3.0 applications is still not good; why should I use them?

Indeed. The infrastructure is still not perfect. When we read on-chain data, if we directly read data from the blockchain every time or read files from decentralized storage, it cannot solve the high concurrency problem. Although there are solutions like Ceramics, they are still in the early stages; CyberConnect's user volume recently has already caused Ceramics to crash.
If you agree with the data value brought by blockchain that I mentioned in the article, then it is only a matter of time.

Q: According to what you said, the moat of big companies in Web 2.0—users and data—are no longer a moat; then what is the moat for Web 3.0 companies? Is there a business problem?

A: This is a question I have been pondering repeatedly over the past few years, and it deserves a separate article to discuss. But to make a long story short, if Web 3.0 can ultimately allow users to obtain a more reasonable distribution of value and a better user experience, then all of this is valuable and the correct direction for development.

The business model pioneered by Web 2.0 is to acquire users for free or even subsidize them, then monetize them. In Web 3.0, there will be another way to capture value and a business moat.

Q: Should I bet everything on the projects you mentioned above?

A: This article does not constitute any investment advice. It is very difficult to judge which of the projects mentioned in the article will succeed at this moment. Just like in 2018, when Axie's co-founder Jihoz excitedly told me that Axie had reached 160 DAU, I believe neither of us could have imagined that three years later, Axie would have millions of daily active users and a $10 billion FDV. At this moment, we can only bet on the right direction, reliable and long-term teams, and continue to explore together on the road ahead in the coming years.

I personally and my institution are very optimistic about the entire track derived from data; this is an important investment theme for us in the Web 3.0 field, and we have laid out multiple ecological projects. We welcome partners who are starting businesses in this track to communicate.