Let's be honest. The hype cycle of all things Web3 is well and truly over. News stories are few, and if you exclude those talking about failure, it's pretty much all radio silence.
But despite the crypto winter — Web3 funding decreased by 74 percent in 2023 compared to the previous year —Web3 platforms are still fundraising.
For example, in just a couple of months, projects built on the Switzerland-founded Internet Computer (ICP) have already raised over $15 million through the ICP's community governance model.
And there's not a VC in sight.
What is the Internet Computer?
It sounds like something a boomer would say to describe what they use to surf the web, but the Internet Computer was developed by the Internet Computer Protocol (ICP).
It enables people to build Web3 services and enterprise systems directly on a public decentralised network, scaling to hosting social networks and media streaming.
Hosted services are tamperproof, don't need firewalls, support Web3 functionality, and can trustlessly interact with the outside world.
In effect, The Internet Computer blockchain acts as a complete alternative technology stack, replacing the centralised IT stack mostly controlled by "Big Tech".
The ICP asserts that developers can create decentralised dApps and services in emerging areas such as SocialFi and GameFi, which blend social media and game functionality with DeFi, and "build out the fully decentralised metaverse."
Is the day of the DAO finally here?
So, how are Web3 projects raising money despite a VC funding downturn? It's all thanks to decentralised autonomous organisations (DAOs)
ICP claims that a new kind of DAOs are breathing new life and much-needed revenue, signifying the rising demand for such governance models and a new paradigm shift toward user-centric decision-making. They turn regular users into shareholders, directors, and decision-makers.
"Why be a user when you could become a founder?" is the breathless promise!
To be fair, I haven't heard much about DAOs for a while.
There was, of course, the DAO that bought Wu Tang Klan's "Once Upon a Time in Shaolin" for $4 million from the US government after seizing it to recoup funds from Martin Shkreli.
We've seen variations of DAOs in sailing, media, and of course, Web3 building. But we've also seen more noise than substance, especially regarding football DAOs. That said, it's uncertain how much inactivity is due to COVID vs. the efficacy of a DAO.
But now it looks like they are still kicking. ICP startups have raised over $15 million through the ICP's Service Nervous System (SNS) community governance model.
OpenChat (UK) raised over $5.5 million (1 million ICP) in just 6 hours of its decentralised fundraising round. Its creating a chat application running end-to-end on the Internet Computer blockchain.
Hot or Not (US) — no, not the appearance rating site — recently raised $4.5 million. The startup is building a Web3 social media platform that combines short videos with prediction markets.
And it's quite different from the appearance rating site by the same name that some of you might remember.
The platform allows users to stake specific amounts of their chosen tokens on short videos, essentially dividing into two camps — those who believe a video will become viral — or "hot" — and those who think "not." After a 48-hour voting time frame, the clip is deemed "hot" or "not" based on the prevailing majority of votes.
This is an interesting way of monetising social media consumption.
Also, Kinic recently secured more than $2 million (500,000 ICP) to build out its vision of a decentralised "Google of Web3."
Kinic is the world's first Web3 search engine, a decentralised answer to Google and similar platforms.
It promises to assure user and data privacy, providing open-source and transparent SEO, and verifiable machine learning and search algorithms — powering a new paradigm in freedom to information access.
Can a Service Nervous System community governance model solve the participatory challenges of DAOs?
Let's be clear, DAOs aren't foolproof. Collective decision-making and participatory governance require active participants. And often not enough people vote to get anywhere near a majority.
According to Internet Computer, a Service Nervous System (SNS) is an advanced form of a DAO that can run any Web3 app, such as a social network, in a fully decentralised way and fully on-chain.
The community can buy governance tokens to take ownership and control through the SNS DAO and shape the future of a decentralised app (dApp).
The SNS framework allows communities to manage a dApp fully. Token holders propose and vote on all changes made to a dApp, including code updates.
I asked Lomesh Dutta, Vice President of Growth at the DFINITY Foundation, how SNS solves the user engagement challenges.
The DFINITY Foundation is a Swiss-based not-for-profit organization with the largest R&D team in blockchain and a major contributor to the Internet Computer.
He told me that the SNS significantly boosts user engagement and participation because these DAOs are formed by an existing and highly dedicated community of early adopters.
"In fact, in many cases, SNS proposals lacking initial support from the community fail to get off the ground altogether, eliminating the possibility of inactive or unengaged DAOs.
This approach differs significantly from typical DAOs, where anyone can buy a token and participate —often motivated solely by profit expectation — which can lead to a drop-off in interest in the long term."
Additionally, users are rewarded with airdrops, voting rights, and more through the SNS in response to their day-to-day interaction within the apps they love and engage with.
"Again, this differs from the usual DAO approach as dApps created via the SNS typically involve high-engagement services, including social media platforms, games, online news media outlets, and more."
Further, the fact that SNS-based DAOs can be owned and governed by the people themselves comes with substantial benefits:
"The users own the service rather than the service monetising the users. The users can shape how "their" service evolves in the future.
No centralised entity can unilaterally make decisions negatively affecting the users and their personal data. As a result, such SNS-based DAOs can be developed in the best interest of the communities that nurtured and formed them."
Lead image: Shubham's Web3.