McKinsey Analysts Break Down the Fundamentals of Web3
In an article from McKinsey & Co., the author details the rise of Web3 including a primer on what it is, how it is built, what it can and cannot do, the risks, and implications for stakeholders. Web3 is considered an evolution in the internet, a new iteration where “control is no longer centralized in large platforms and aggregators, but rather is widely distributed through ‘permissionless’ decentralized blockchains and smart contracts.” The governance of Web3 is intended to be run by the community and revenue flows back to those creators and users. One interesting adoption of Web3 technology is in the financial services space. The article highlights that when assets sit on the blockchain, instead of going to a depository institution where it is then loaned to borrowers, a smart contract can be employed to lend the users assets from the blockchain once certain, defined criteria are met. The article states “borrowers still look for loans but can only receive funds from the smart contract (which were originally provided by the depositors) after the borrower has posted sufficient collateral.” Additionally, the technology of Web3 is spreading to numerous sectors, including carbon markets, art, real estate, gaming, social media, and others. The article notes, however, that “the regulatory picture for Web3 remains unsettled, with calls for greater clarity on some assets and more consumer protection for funds held in custody.” There are other issues such as cost, data privacy, complications with mainstream adoption and understanding, and inherent risks of decentralized technology.