Building a Web3 Infrastructure and Application Portfolio

Web1 was the internet before Twitter and Facebook. Web2 has been the drive to social media built on a foundation of internet protocols 4 and 6 plus smart mobile. Web3 applies decentralization as a principle and blends these technologies with blockchain design patterns. There are numerous communities driving Web3 with different motivations: immutability, decentralized governance, open source software development, anti-fiat sentiments, and anti-censorship. There are of course builders and technologists trying new things and mimicking known patterns like domain name services, certificates, object storage, indexing, payment systems, and marketplaces. Here are some examples.

Ethereum and Ethereum 2 – Ethereum is the community-run technology powering the cryptocurrency, ether (ETH) and thousands of decentralized applications. Ethereum 2 is a set of upgrades that improve the scalability, security, and sustainability of Ethereum. Although each is being worked in parallel, they have certain dependencies that determine when they will be deployed.

Interplanetary File System (IPFS) – IPFS is a distributed system for storing and accessing files, websites, applications, and data. Instead of being location-based, IPFS addresses a file by what’s in it, or by its content. The content identifier is a cryptographic hash of the content at that address. (https://ipfs.io/#why) IPFS does not have its own token, but its founder went on to create Filecoin also.

Filecoin – Filecoin is a cryptocurrency that powers the Filecoin network, a decentralized peer-to-peer file storage network that aims to let anyone store, retrieve, and host digital information. FIL tokens are used as payment for these services and as an economic incentive to ensure files are stored reliably over time. (https://filecoin.io/

The Graph – The Graph is an indexing protocol for querying networks like Ethereum and IPFS. Anyone can build and publish open APIs, called subgraphs, making data easily accessible. The Graph surpassed 20 billion queries in April 2020 (https://thegraph.com/blog/20billion-queries).

Uniswap – Uniswap is an Ethereum token (based on the ERC-20 smart contract) that powers Uniswap, an automated liquidity provider that’s designed to make it easy to exchange Ethereum tokens. There is no orderbook or central facilitator on Uniswap. Instead, tokens are exchanged through liquidity pools that are defined by smart contracts. Uniswap pioneered the Automated Market Maker model, in which users supply Ethereum tokens to Uniswap “liquidity pools” and algorithms set market prices (as opposed to order books, which match bids and asks on a centralized exchange like Coinbase). (https://uniswap.org/) Note: Uniswap is the target of an SEC examination. (https://www.reuters.com/legal/litigation/us-sec-investigates-crypto-exchange-developer-uniswap-labs-wsj-2021-09-03/)

Algorand – Algorand created the world’s first pure proof-of-stake foundational blockchain designed for the future of finance. Beyond the elementary requirement of an open, public network, Algorand’s technology enables a set of high performing Layer-1 blockchains that provide security, scalability, complete transaction finality, built in privacy, Co-Chains, and advanced smart contracts that are essential in a future finance (FutureFi) world. Note: Algorand is involved with the El Salvadoran government’s blockchain strategy. (https://www.algorand.com/resources/ecosystem-announcements/el-salvador-signs-agreement-with-koibanx-to-develop-its-blockchain-infrastructure-on-algorand)

Aave – Aave is an Ethereum token that powers Aave, a decentralized non-custodial money market protocol (~$25 billion) where users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow cryptocurrencies in exchange for paying a variable interest rate. (https://aave.com/

Audius – The music industry generates $43 billion in revenue but only 12% goes to content artists. Furthermore, artists have minimal control over how their music is distributed and little visibility into who is streaming it. To address these and other problems faced by artists, we introduce Audius, a fully decentralized music streaming protocol built with public blockchain infrastructure and other decentralized technologies. Audius allows artists to distribute to and get paid directly from their fans. (https://audius.org/en/home)

Basic Attention Token – Basic Attention Token (BAT) is an Ethereum token that powers Brave Software’s blockchain-based digital advertising platform. Internet users who browse the web using Brave’s free web browser (available at Brave.com) can choose to replace the ads they see with ads on Brave’s ad network. Users then receive BAT from advertisers as compensation for their attention. (https://brave.com/brave-rewards/)

0x – Zero X is an application programmable interface (API) for moving transactions among different Ethereum tokens and decentralized marketplaces. The 0x protocol uses an approach they refer to as off-chain order relay with on-chain settlement. In this approach, cryptographically signed orders are broadcast off of the blockchain through any arbitrary communication channel; an interested counterparty may inject one or more of these orders into 0x protocol’s Exchange contract to execute and settle trades directly to the blockchain. 0x uses a modular system of Ethereum smart contracts which allows each component of the system to be upgraded via governance without affecting other components of the system (i.e., microservices) and without causing active markets to be disrupted. (https://0x.org/about/mission)

Ankr – Ankr (ANKR) is an Ethereum token that powers Ankr, a Web3 infrastructure and cross-chain staking DeFi platform that aims to make it easy and affordable for anyone to participate in blockchain ecosystems by building dapps, hosting nodes or staking. The ANKR token can be used to pay for services on the Ankr platform, such as node deployment and API services, participate in on-chain governance and also acts as an insurance for network participants. Ankr is a Web 3.0 infrastructure provider. We offer a globally distributed network of nodes for multi-chain access across 40+ blockchains. (https://www.ankr.com/)

Recent Charts. Below we provide charts for these tokens (as available) from January 1, 2021 through August 31, 2021.

Correlations. The next critical analysis we performed was to calculate the correlations between and among these tokens. Our goal is to find tokens that correlate closely to Ethereum’s performance and tokens that are negatively correlated with it. This enables us to participate both in momentum investing around Ethereum and hedge against any drawdowns in it. The table below summarizes the most interesting observations.

Token PairCorrelation
ETH:0x0.49
ANRK:BAT0.93
ETH:ADA0.86
ETH:ANKR0.51
ETH:FILE-0.31
ETH:GRT0.06
ALGO:AAVE0.28
ANKR:GRT0.34
ETH:ALGO0.78
ANKR:ALGO0.78
This table provides the correlations between select token pairs.

Notes. ETH, BAT, and 0x were correlated from October 6, 2017 through September 18, 2021. ADA data is from December 1, 2017 through September 18th. ANKR data is from August 18, 2020. FILE data is from April 23, 2021. GRT is from December 25, 2020. ALGO data begins on July 25, 2019. AAVE data begins on July 2, 2021.