Web3, the latest iteration of the internet enabled by blockchain technology, is rapidly evolving and continuously updating its infrastructure to accommodate the growing number of users. This presents numerous opportunities to enhance efficiency, reduce costs, and significantly improve security and privacy in decentralized platforms.
“The top priority of the Web3 industry is mass adoption, to the largest extent being accepted by people in society. In order to achieve that, interoperability and scalability will be the two areas that the industry will need to address,” OKX Ventures partner Jeff Ren tells The Asset in an exclusive interview. OKX Ventures is the investment arm of crypto exchange OKX.
Interoperability ensures that on-chain assets and information can be transferred between blockchains without friction. It is essential to connect decentralized autonomous organizations (DAOs), including users, developers, and on-chain funds, in a particular segment of the Web3 universe.
A digital wallet is an example of interoperability. Examples of Wallet as a Service (WaaS) are Coinbase Wallet and OKX Wallet. It provides a secure and scalable infrastructure for managing digital assets, facilitating transactions, and validating a users’ digital identity.
On the other hand, scalability poses a significant challenge for Layer 1 blockchains such as ethereum and bitcoin, given the increasing number of users and transactions of digital assets (e.g., the trading of tokenized real assets and cryptocurrencies). Transaction speeds slow down and gas fees (the cost of computation power) increase.
Layer 2 solutions address such issues by enabling blockchain to overcome the barriers of oversaturation. Examples of Layer 2 blockchains include Linea and Stakenet, which are all ZK (zero knowledge) rollups. ZK rollups are designed to help scale ethereum’s network by taking computations and storage off-chain, thereby reducing the computational burden on the EVM (ethereum virtual machine), the engine behind ethereum’s transactions.
If 10,000 ethereum users want to perform transactions simultaneously, without ZK rollups, only a dozen or so transactions would be processed immediately. Consequently, hundreds or thousands of users would have to wait for several minutes or hours. Naturally, longer processing times result in higher gas fees. ZkEVM, a type of ZK rollup, has successfully reduced gas fees by over 90% across the board, according to liquidity and technology provider B2Broker.
Looking to offer additional options for Layer 2 solutions, OKX and blockchain software provider Polygon Lab announced on November 14 the pilot of X1, a new ethereum-based ZK Layer2 network built with the Polygon Chain Development Kit.
“It will see the emergence of new projects about ZK technology, and we will see clear leaders soon in this space, in which its competition relies on performance, cost, and the products. With the launch of the X1 network, we may also see more centralized exchanges and asset management platforms increasingly exploring and using open-sourced public chains to establish and expand their businesses, taking advantage of these latest innovations in the market,” Ren says.
Gaming offers another investment opportunity in the the Web3 industry. the global blockchain gaming market, estimated at US$4.6 billion in 2022, is expected to grow to US$65.7 billion by 2027, according to a recent report by market research provider Markets and Markets.
OKX Ventures recently signed an investment and partnership agreement with Thirdverse Group, a Japan-based web3 and virtual reality game company. “WaaS is expected to be utilized in the game as a login node, while the wallet can serve as a custody and transaction platform for all the assets generated within the game,” Ren explains.
However, he notes: “Fully blockchain-based games are still in their early stages, and we haven't seen many successful cases yet. The slow operating speed and high fees fail to meet users' expectations, making it challenging to cultivate loyal customers.”
He also points out that most games marketed as “Web3 games” are actually “Web2.5” games, where the user experience remains generally centralized in the realm of Web2 while incorporating some Web3 elements such as digital asset ownership in the form of NFTs.
Compared to traditional venture capital firms, OKX Ventures is a corporate venture that primarily focuses on assisting OKX in formulating and executing the company’s strategy, Ren explains. “OKX Ventures will focus even more on the developer community and the development of the public chain ecosystem, aligning with the firm’s (OKX) strategic goals.”
Ren is bullish about the growing adoption of cryptocurrency in Asia. “Investor sentiment remains robust. With the approval of a bitcoin ETF by the SEC approaching, it will be easier for the public to become familiar with cryptocurrencies,” he highlights.