The new buzzword “Web3” has recently jumped into the public’s mind.
It means different things to different people, but in general, Web3 is used to describe the next evolution of the internet. It includes the belief in democratization of the internet where decentralized protocols and tokens will be core features of a new system.
In case you missed it, Web3 divides people into two camps.
One camp is betting their time, money, and energy that this new iteration will be the next big thing in technology.
The other believes that the entire Web3 system is unsustainable and just a way to enrich the insiders.
The entire debate boils down to the main question.
Is ownership of Web3 decentralized?
Let me clarify.
But first, let’s look at the token supply breakdown of typical projects.
For example, here’s Solana’s initial token distribution:
There are two main takeaways from this example.
First, three primary stakeholders are the team, private investors, and the community.
The team typically holds between 20-30% of the token supply, and private investors are between 15-50%. And the remainder of the token supply is used by the community for various activities, including pre-mined rewards, airdrops, yield farming, or ecosystem funds.
Second, the Web3 companies have a structural advantage in their ability to get economic incentives in the hands of their community.
It’s important to remember that in the legacy Web2 world, only two stakeholders, the team and large funds, end up owning all equity.
But that’s not all.
Although with the Web3 firms, the team is similar to Web2’s traditional equity, the big debate in the Web3 world is about private investors and the VC funds.
The point often overlooked here is that the actual investors are not the VC firms.
Take Sequoia’s ownership structure, for example. According to an excerpt from the Sequoia website, their ownership mainly lies with nonprofits and schools.
The average VC firm takes 20% carried interest on their investments, so if a firm owned 30% of a project’s tokens, the non-profit LPs would have 24% of the tokens, and the venture capitalists would have approximately 6%.
To put it differently, the VC funds are simply intermediaries.
These vehicles are usually owned by numerous passive retail investors, foundations, nonprofits, or pension funds.
In contrast, most Web2 companies are owned by large, centralized Wall Street firms like Vanguard or BlackRock.
In other words, the ownership of Web3 is more decentralized than in the case of Web2.
In conclusion, it’s also important to point out that as legacy Web2 companies become more concentrated in ownership, the Web3 companies get more democratized in time.
Of course, no one knows if this trend will continue.
However, based on what we’ve witnessed in crypto, Web3 is predetermined for more decentralization.