In 2023, the excitement of the grand metaverse dream—a virtual, augmented-reality online existence championed by tech giants including Meta CEO Mark Zuckerberg—vanished. While the concept had gained early traction among tech enthusiasts, most consumers didn’t get the appeal. As investors started pulling back on metaverse investments and flocking to generative AI, many business leaders were left questioning the broader value of Web3.
In short, Web3 is the vision of a decentralized, user-owned Internet built on three foundational technologies: blockchain (a distributed ledger); smart contracts (the ability to execute agreements without third party oversight); and tokens or tokenization (digital representations of assets, such as nonfungible tokens, or NFTs, stablecoins, cryptocurrencies or tokenized real-world assets). Despite the disillusionment of the past year, there are green shoots of value in this space, with a shift away from the casino mindset that pervaded in Web3’s earliest days and toward chasing real-world value.
The rise of stablecoins, cryptocurrencies pegged to a real-life currency or asset, which now tops $130 billion in global circulation, is enabling companies to make transactions faster and cheaper. The digital exchange platform Airtm, for instance, uses Circle’s U.S. dollar-tethered (USDT) coin to deliver low-cost cross-border payments, saving up to 35% when paying remote workers. Blockchain and smart contracts are enabling the tracking and tracing of materials—from gold to airplane parts to carbon—across complex ecosystems. Tracr, a De Beers company blockchain, now tracks more than 100,000 gold stones a month, roughly 15% of the world’s production. Brands such as Nike and Puma are also demonstrating success leveraging Web3 technologies in conjunction with physical campaigns for customer engagement.
This quiet shift towards more practical, value-based applications of Web3 has led industry leaders like Citi to estimate that $5 trillion of central bank-issued digital currencies, or CBDCs, could be circulating by 2030, with tokenization of real-world assets approaching $4 trillion. That’s a far cry from the Web3 obituaries that have been written over the past year.
From revolution to real-world value
The early versions of Web3 were born out of a revolutionary ideology of insurgents with a vision of an alternative to established institutions. But the reality that has emerged is that Web3 is now being embraced by savvy incumbents, like JPMorgan Chase, Nike, and BlackRock, and even being integrated into the fabric of existing institutions it was once meant to destroy. The goal is now more practical: embedding Web3 technology in processes, assets, and value chains that aim to solve global problems that are not possible with Web2 alone. (Web2 refers to the second era of the Internet, emphasizing user collaboration and interaction, with centralized ownership and control of data by major tech companies.)
In order to realize that potential, however, companies old and new first need to rethink how they approach Web3 and derive value from it. Many large companies are already engaged in this process. But many more companies of all stripes could and should be doing the same. For that to happen, their leaders need to update their Web3 understanding in three ways: 1) Web3 must be seen as an accelerator, not a replacement; 2) it must move away from general-purpose technology towards focused, value-proven use cases; and 3) ecosystem strategies must shift their focus from dominance to networked partnerships.
An accelerator, not a replacement
This key change in Web3's outlook as a means of enhancing current Web2 propositions and infrastructure means that instead of focusing on creating distinct virtual worlds such as Meta's Horizon Worlds, Web3 needs to be embedded in companies' tech stacks and integrated into business strategies.
The Starbucks loyalty program Odyssey is a prime example of a modern Web3 loyalty program embedded within existing journeys and real-world experiences. Odyssey members earn stamps (NFTs) redeemable for exclusive rewards, such as invitations to real and virtual events; the stamps can also be traded on NFT marketplaces. The beta program is estimated to have generated over $1 million in revenue, despite targeting only a fraction of Starbucks customers. That return, if extrapolated out, could mean tens if not hundreds of millions of dollars in additional revenue.
Enterprise tools are also increasingly integrating Web3 components to match companies’ interest. Salesforce now offers smart contract templates, Web3 data models, and wallet risk scoring, to make it easier for companies to launch Web3 loyalty programs. Solana Pay, a decentralized payment protocol, is providing customers near-zero-fee Web3-native payments through integrations with global commerce giants such as Shopify.
Audius, a decentralized music streaming platform that attracts between 7 million and 8 million monthly users, has been successful offering a highly integrated, user-friendly experience that includes custodial wallets for fans operated by the company. Rather than expecting music lovers to be Web3 aficionados, Audius’s CEO says the aim is for fans to get “the benefits of decentralization without having to be super aware of using a wallet.”
There has also been a recent wave of interest in the convergence of Web3 and GenAI, as companies explore how blockchain’s immutable ledger and decentralised digital identities could create greater trust in and verifiability of AI-generated content. Web3’s recordkeeping of information could help determine whether content is human-generated or AI-generated. Aptos Labs and Microsoft are exploring the convergence of the technologies to determine whether training data is bias-free and whether LLM-generated outputs are authentic and trustworthy. Shortly after the launch of ChatGPT, OpenAI co-founder and CEO Sam Altman announced the launch of new company, Worldcoin, to provide “proof of person” digital identity for the AI age.
Artists, meanwhile, are combining AI and Web3. Singer and songwriter Grimes has merged the two to allow users to transform their vocals into Grimes’s unique vocal style. Resulting royalties would be automatically split—using smart contracts—between the collaborating artists and Grimes. The generative power of AI combined with the pay-out ability of smart contracts offer a powerful integrated solution.
Embedding Web3 technologies into Web2 infrastructure to enhance rather than replace existing propositions is essential to drive adoption. But for more widespread adoption, use cases must also be embedded within regulatory guardrails. New regulations, such as MiCA (EU Markets In Crypto-Assets Regulation), were launched in 2023, but stronger focus on regulation is needed for Web3 technology to proliferate more widely.
Moving away from general-purpose use cases
Rather than being deployed as all-purpose use cases, Web3 is valuable when focused on specific scenarios where it adds to what Web2 alone can already offer. The best examples of Web3 applications moving from general-purpose to specific technologies are in the realm of tokenization. When NFTs first launched, they were used to drive speculative value, but had limited functionality. Companies flocked, creating NFTs with limited consumer value, and as a result the NFT market quickly crashed.
We now see investment shifting towards utility-based NFTs. Companies like book.io are using utility-based NFTs to transform ownership of digital content, such as e-books. Currently, when readers buy e-books, they don’t own the book itself, only a license to view the content. That means they can’t resell, lend, or give it away. In addition, authors have limited opportunities to take advantage of secondary market royalties. The advancements in NFT infrastructure and decentralized storage aim to address these problems.
NFTs are also being used as proof of ownership for real-world assets including art and luxury collectibles. The platform BlockBar specializes in NFTs of luxury liquor brands that serve as proof of authenticity. The company Arianee allows brands more broadly to create digital product passports connecting physical products to a digital identity that can be tracked and traced.
Meanwhile, established companies such as JPMorgan Chase now offer tokenized deposits to develop new trading, borrowing, and lending services through blockchain platforms such as JPMorgan’s Onyx. And fungible assets such as stablecoins are making it easier and cheaper to make virtual transactions. According to a recent report, in 2022, stablecoins settled over $11 trillion worth of transactions onchain, almost matching the payment volume of Visa ($11.6 trillion) during the same period.
Changing ecosystem dynamics
The rise and fall of Meta’s metaverse vision showed that trying to exert market dominance while trampling ecosystem dynamics is counterproductive. To realize the benefits of Web3, co-opetition and partnership-building are essential. In 2024, we anticipate that more companies will adopt decentralized technology to advance solutions for collective, global problems. But what does that mean for a CEO looking to extract value from Web3?
For CEOs, when we think about the future, it’s important to remember Web3 is no longer about technological disruption, but about co-optation of the new with the old to create infrastructure and ecosystems that solve problems jointly across a shared value chain. We’re already seeing this assimilation across industries.
One example is Project Guardian, a collaboration between players across the global financial ecosystem, including policy makers and industry groups, to explore the feasibility of open, interoperable networks that enable digital assets to be used across global platforms for multiple use cases. This is an important step to jumpstart the move away from closed ecosystems with siloed use cases. London Stock Exchange Group’s recent announcement of a blockchain-based trading platform, after it had determined the public blockchain infrastructure was now “good enough” to build on, is another indication that the nature of Web3 may be moving from private to more open, public infrastructure.
Web3 building blocks have the potential to address significant challenges in the carbon market, such as carbon credit credibility, standardization, and transparency across the value chain. Blockchain, smart contracts, and tokenization can contribute to providing the necessary global trading infrastructure to establish a unified, fluid carbon market. To make that happen, however, it is essential for participants in the ecosystem to come together across the value chain. Startups like KlimaDAO and Toucan are already in the market—Toucan alone has tokenized over 20 million carbon credits, generating $4 billion in carbon trading volume—and are being joined by incumbents like SAP, which is offering a “green token” using blockchain. To truly unlock global value, however, we still need to see a more substantial shift in mindset to embrace ecosystem collaboration and open, public infrastructure.
What now?
The reality is that Web3, including the metaverse, is not dead, but it is different. As we move from tech utopia to real use cases, having a clear strategy of when and how to use Web3 is important. Companies should look at how the building blocks of Web3 can enhance their tech stacks and business strategies, not replace them, and do this with a laser-focus only on use cases beyond what Web2 alone can offer.
There are key questions companies can pose to themselves to help assess if and how Web3 is needed. Is there a deficit in transparency and trust that Web3 technologies, like blockchain, could address? Can Web3 mechanisms such as tokenization unlock liquidity where traditional methods have failed? In the age of unlimited content, how might utility-based NFTs and smart contracts ensure an effective digital asset ownership and reward strategy for creators and consumers?
Beyond that, company leaders should rethink how they approach their ecosystem dynamics. Finding the right partners to build stronger network effects, from technology collaborators to industry peers and cross-industry stakeholders, will be vital for a strong ecosystem for success.
Read other Fortune columns by François Candelon.
François Candelon is a managing director and senior partner at BCG and the global director of the BCG Henderson Institute.
Michael G. Jacobides is the Sir Donald Gordon Professor of Entrepreneurship and Innovation at London Business School, and an advisor at BCG and Evolution Ltd.
Urs Rahne is a managing director and partner at BCG X and a fellow at the BCG Henderson Institute.
Katie Round is a principal at BCG X and an ambassador at the BCG Henderson Institute.
Some of the companies featured in this column are past or current clients of BCG.
