The future is here already—it’s just unevenly distributed, as science fiction writer William Gibson once wrote. That’s an apt description of two futuristic technologies that have been filling the tech headlines for the past couple of years: Web3 and the Metaverse. Those in financial services might think that these two technologies are still too far out to be relevant, but that would be a mistake. In fact, Web3 and the Metaverse are highly relevant to financial services today— although we might say that their impact is not evenly distributed.
In reality, although Web3 and the Metaverse are often discussed in the same breath, there are significant differences between them.
The Metaverse represents the evolution of how people experience the internet. It’s not a single technology, but a cluster of related technology sets, encompassing virtual worlds, augmented reality, and other increasingly immersive experiences. It’s quite decentralized— there’s generally no interoperability between these “worlds,” and we still lack the compute power, broadband networks and hardware to realize what’s imagined. Many of the current experiences are centered on immersive video games, although the U.S. Department of Defense is also doing extensive simulation work using Metaverse-related technologies. Outside of games and the DoD, however, the Metaverse is not yet a tangible reality for most people, and it’s anyone’s guess how many decades away we are from mass utilization.
Web3 is also a cluster of technologies, but which together represent the evolution of digital ownership and transactions. The transition from Web 1.0 to Web 2.0 brought the ability for people to publish (especially on social media) and to access mobile websites and mobile apps. Web3 takes that a step further, from distribution and publishing to ownership on a distributed basis, with no centralized authority.
Web3 technologies are closer to having an immediate impact, especially in the financial services and banking worlds, so in this post, I’ll mostly focus on those.
What's valuable about Web3
For financial services, Web3 offers tremendous potential. Since its based on blockchain technologies, there’s enormous opportunity for disintermediation— removing the middlemen from many transactions where they are currently required. Managing ledgers, lists and even financial instruments can be done without a central authority, such as a bank.
Web3 also permits distributed development of applications. You don't need to rely on big cloud companies or network providers to create and deploy applications— you can develop them, deploy them on a blockchain and make them immediately available to use by any users of that blockchain worldwide. An example is Quicknode, whose cofounder, Auston Bunsen, recently joined an executive roundtable that Truist Ventures hosted. Quicknode is a single platform that helps developers build and test applications on chain, helping make this vision of distributed development a reality.
It’s important to note that decentralization and centralization can and will continue to co-exist, particularly for financial services use cases with legacy systems and regulatory considerations. It’s not all or nothing, but a spectrum. Many projects start centralized and aim to progressively be more decentralized over time, for example. There are also things, like certain calculations for machine learning or large file storage, that can’t be done on chain yet. We’ll continue to see hybrid solutions for some time.
What Web3 still lacks
This is not to say that Web3 is entirely ready for prime-time use, especially in finance. There’s a notable lack of simple, easy-to-use architectures for building graph nodes (applications), wallets and other apps on chain.
We still need innovations on the application level, such as on-chain messaging (being able to send messages from one wallet or application to another) and reputation systems. Right now, app developers need to create all these things from scratch, greatly increasing the time and cost of creating blockchain-based apps.
Interoperability is also an issue: There are dozens or even hundreds of blockchains upon which to build. If you're building an app on one chain and another app lives on another chain, communication between them is difficult or impossible.
Mobile support is another crucial missing piece. Having the right APIs from handset manufacturers and being able to manage private keys on the phone will go a long way. Mobile device vendors could advance the growth of Web3 by leaps and bounds if they enabled deeper integration of blockchain technologies on their operating systems.
Some of these products are in development already. Chris Kurdziel, partner at Mirana Ventures, noted it’s likely to still take two or three years before such solutions reach the market with widespread availability.
Web3 will fundamentally change finance. The Metaverse? Maybe
When data is truly decentralized and intermediaries are no longer required, data won’t be “the new oil” anymore. It will be as ubiquitous as dirt. Instead, how you analyze, structure and use the data will determine your payday.
The distribution of governance and voting rights is a wholesale shift from the way products and services are currently structured, especially in finance. Lending and borrowing behaviors on blockchains are fundamentally different from the way they operate today; they can be executed by smart contracts with no intermediaries required.
Going a step further: Centralized, black-box sources of truth, like FICO® scores, could ultimately be replaced by combining off-chain, on-chain activity and digital asset ownership to produce more holistic creditworthiness. Credit then becomes an open, accessible, public network, which echoes the ethos of Web3 to create disintermediation while enabling distributed, decentralized programmability without the need for networks of trust.
At Truist Ventures, we're focused on making investments in the core building blocks that enable superior financial services in Web3 and that can scale alongside mass adoption. These “picks and shovels” for the Web3 gold rush include solutions for digital identity and privacy, decentralized data infrastructure, risk decisioning, smart contracts for automation, and accessibility.
For the Metaverse, the implications for finance are much less immediate. No single metaverse platform yet has enough reach to make investment in it worthwhile for most financial institutions and interoperability between different platforms is still just a dream.
Financial institutions should keep a close eye on the space, however, and they may want to invest in order to experiment with new types of client interactions or employee training modalities. As with Web3, at Truist Ventures we're concentrating on investing in enabling technologies that the builders of the Metaverse will need to create these experiences of the future.
A revolution in the making
Changes are coming fast, and both Web3 and the Metaverse are advancing their capabilities faster than ever. But this is a revolution that could take decades to unfold completely, despite the tantalizing glimpses of it that we're seeing today.
Regardless of the timeline, Truist Ventures is taking the long view. We look forward to seeing what the future brings and are hard at work uncovering and enabling the pieces that have already arrived.