Here’s the seventh instalment of a series sourced by our innovation arm Abbey Road Red and their research across the music technology and start-up ecosystem. Each month, Abbey Road Red's Karim Fanous and Anthony Achille will present a short overview of their top stories — view the selection from the last month!

Some Webs Don’t Stick.

As we charge into 2023, the web3 space is decompressing and processing the tension that followed volatile market activity in the last quarter of 2022. However, there are undercurrents of a momentum shift within the web3 ecosystem and so the next question for Red amongst the noise around Generative AI, Big Tech layoffs and market volatility is “What’s next for Web3?”

There have been some signals that can give us a clearer idea of emerging trends and future developments in the sector. Here’s a quick selection of reads which tell us that whilst web3 development has risen in Q4 of 2022, it may not be a sign of enthusiasm within the ecosystem.

Brands and artists are steering away from buzzwords such as 'NFTs' and instead widely adopting other language to navigate a post FTX ecosystem where new phrasing is being adopted to build trust back up amongst token holders and collectors e.g. “digital collectibles, social rewards.”

Ahead of the Game Developers Conference, the organisers of the event have released its annual State of the Industry survey results. The survey reports only 23% of developers say that their studios are interested in Web3 technology. 75% of them marked “not interested” when asked if their studio was interested in blockchain technology.

Ethereum, one of the largest layer-1 blockchains in the crypto ecosystem, had a 453% increase in mainnet smart contract deployments in the fourth quarter of 2022, signaling high developer momentum amid crypto market volatility, according to Alchemy’s (Web3 Development Report)[https://www.alchemy.com/blog/web3-developer-report-q4-2022]. Institutional interest in ETH has also increased after the (Proof-of-Stake)[https://techcrunch.com/2022/09/15/ethereum-switches-to-proof-of-stake-consensus-after-completing-the-merge/]Merge, this follows a recent trend of institutions leaning in to crypto despite market volatility.

One key takeaway from successful Web3 brand activations is the importance of creating new and engaging experiences for consumers without trying to mimic, imitate or replace real world experiences as we explored in our recent XR Red Talk.

Bringing web3 functionality into an already established ecosystem (Fashion, Gaming) is proven to be a successful method of adopting users into web3, provided that there is actual utility behind the novelty.

Nikeland is Nike’s purpose-built metaverse space that uses the Roblox platform to allow its fans to meet, socialise, take part in promotions and engage with a whole range of gamified experiences. Nikeland combined with Nike’s separate success selling a collection of personalised Nike Cryptokicks has demonstrated the success in matching the power of metaverse and Web3 technologies with authenticity and personalisation to engage users.

With HyperPlay, players can carry their wallet, tokens, NFTs, and achievements into every game with web3 capabilities through connecting their MetaMask.

Upland is a mirror metaverse that replicates real-world locations in virtual reality and delivers gamified social experiences. It marks the beginning of a multiyear partnership with FIFA that will start with the launch of a World Cup village and then branch out into different leagues and competitions.

Fiat Payment Processing companies are leaning in to Web3 opportunities which is healthy for the financial infrastructure behind Web3. This trend gives users a bridge between fiat and digital currency which they can trust creating tangible ways in which to scale and secure the ecosystem.

Stripe announces a new product that makes it easier to hold cryptocurrencies without signing up to a cryptocurrency exchange. The company’s new fiat-to-crypto widget can be embedded in any crypto product so that users can enter their card information and acquire crypto that can be used in another web3 product.

Visa CEO said that the company believes that stablecoins and CBDCs could play a meaningful role in the payment space.

Mastercard and Unbanked have already established a footprint in the United Kingdom and Europe and solidified relationships with leading Web3 organisations to launch card programs with a focus on innovation in the payments space. Through this initiative Unbanked and Mastercard are committed to enabling the issuance of cryptocurrency powered card programs focused on simplicity, security, and consumer protections.

1. There will need to be an incremental build in trust for web3 to thrive. NFTs are fostered by community, however as NFTs have become a ‘dirty word’ in light of recent events, fans and brands may need to market them differently for example as “digital collectibles or digital assets.” As metaverses are still nascent, language, labelling, utility and interoperability is critical to its adoption and success. At the moment, it doesn’t seem to matter if a digital asset is tied to a unique token, or even the opposite, what matters is the utility of it; what experience can said token unlock, what community can it make you a part of?

2. Whilst there is still a lot of unrealised potential in Web3, what seems to appeal to fans are features and experiences that offer virtuous and allow expression and personalisation without trying to mimic or provide a watered-down version of a real-life experience, whether this be through gamified experiences or otherworldly social engagement in the metaverse, music will play an important role.

3. Established and trusted entities will continue to innovate in the slip stream of failure in the space. The changing crypto landscape will lead to growth for peripheral products and services that can demonstrate value in enhancing custody, compliance and customer experience. Staking is one such service, and it has already been a preferred tool for many institutions due to its security and sustainable yield.