A Health Check of the Web3 Ecosystem Signals Strength in These Trying Times

Is Web3 still on? The bear market seems to be here, and you know what that means. On the one hand, the general public will forget about crypto’s existence and ignore crypto-related news for the time being. On the other, the community will quietly build the next generation of Web3 applications and services. It’s the way of the world. That’s how cycles work in this fragile-but-vibrant environment. 

The study we got all of the information we’ll use in the following paragraphs is by Telstra Ventures, a global VC that invests in lighthouse technologies as they commence scaling.

According to the study,

“Telstra Ventures’ data science team analyzed 1,000 active organizations contributing to more than 30,000 open source Web3 projects.”

So, this is hard and recent data we’re talking about. 

The results are not surprising at all. There’s been a decline in development since its peak in November 2021, sure, but it’s not proportional to the decrease in price. Not even close.

Telstra Ventures describes the current situation as follows:

“The crypto contagion - fueled by the collapse of Terraform Lab’s UST stablecoin, Celsius Network pausing withdrawals, and Three Arrows Capital defaulting on its loans - has been especially rough on digital currency holders and crypto startups looking for funding. Since January, a 60% loss in crypto market cap wiped $1.3 trillion, and VC investments tumbled 25.6% to about $9.3 billion, down from a record $12.5 billion invested during last year’s first half, according to Crunchbase News.”

We have to add Elon Musk’s paper hands to that contagion event. One of the companies he presides with, Tesla, reportedly sold 75% of their bitcoin during Q2. That’s almost a billion dollars worth of BTC that hit the market, lowering the price of the asset in the process. And Tesla sold as Terra collapsed and their Luna Foundation Guard had to sell 800K Bitcoin to try and save the UST peg to the dollar. The sale pressure both of those events had on the market probably squeezed all of the other institutions that couldn’t escape the debris. 

Who Will Survive The Bear Market?

It’s safe to say cryptocurrencies in general will survive the current market conditions. This has happened before and will happen again. Nevertheless, a lot of projects will die. It’s the way of the world, some teams will not be able to stand the pressure. Others will see their VC funding dry. Still, others will see their collaborators and employees lose interest and drift away.

According to Yash Patel, Telstra Ventures General Partner, blockchain developers’ commitment to Web3 ecosystems forms the basis for the sector's medium- and long-term viability, despite short-term price fluctuations. He contends that

"developer's decisions about which protocols to use will be driven by use case and will point to the winning protocols."

That’s the reason-to-be for their study. Beyond the hysteria, the logic behind it is that developer interest is a clear sign of health.

The study limited itself to three leading blockchains in the Web3 ecosystem, Bitcoin, Ethereum, and Solana. How healthy are the projects developers are building on top of them? Saad Siddiqui, another Telstra Ventures General Partner, specifies examples of open source blockchain projects. “Helium for network coverage and Render for decentralizing GPU rendering,” StockX and Blockdaemon for “extending B2C companies' reach into the Web3 space,” and “Compound, which allows users to take out collateralized loans and Uniswap,” the premiere decentralized exchange.

How’s the Ethereum ecosystem doing?

As of now, “Ethereum remains the largest and strongest developer community.” However, the decline in price has somewhat affected interest. According to the study, “Since Ethereum’s peak of price in Nov 2021, the number of monthly active contributors has a drawdown of 9.0%.” An easy-to-understand number that will surely grow if Ethereum accomplishes the merge and transitions to the proof of stake consensus mechanism. 

From a historic perspective,

“Ethereum’s contributor community has grown at a 24.9% compound annual growth rate over the past 4 years since Jan 1, 2018.”

Great numbers show that talent is flocking to the platform as it grows.

How are things with the young Solana?

Consider this,

“The Solana developer community began taking shape in late 2017, and the first block was created in 2020.”

This blockchain is still a child, which makes its numbers that much more impressive.

“Solana’s contributors have grown at a 173.0% compound annual growth rate over the past 4 years since January 1, 2018.”

The new kid on the block is showing everyone what it’s made of.

And yes, the Solana blockchain has had some hiccups and had to be stopped a few times. That and the price drawdown have had a clear effect on the number of contributors and developers interested in the platform.

According to Telstra Ventures’ study:

“Since Solana’s peak price of $204.35 in Nov 2021, the number of active contributors has declined 21.0%.”

Is Bitcoin still the king of the jungle?

Old reliable Bitcoin continues to reign. Despite price volatility, the study found a “slow and steady growth.” Its numbers are not as flashy as the other two

“Bitcoin has seen a 17.1% compound annual growth rate in the number of contributors during the past 4 years since January 1, 2018.” 

However, Bitcoin is the only one of the three analyzed blockchains that have continued growing despite the price decrease.

“Since the peak of the price of crypto Bitcoin in October 2021, the number of active contributors has grown 8.2%.”

This is not an isolated phenomenon, according to Telstra Ventures:

”Bitcoin has seen steady growth in the number of active developers over the past 8 years.”

Are the analyzed projects VC Backed?

A secondary target of Telstra Ventures’ study was an institutional investment. In this regard, they found out that

“7 of the 10 fastest growing projects are backed by VCs or by corporations.”

Not only that:

“4 or more of the 10 fastest growing repositories in each ecosystem are backed by VCs or corporate investors.”

So, there’s an obvious correlation there. 

However, Telstra Ventures points out an even bigger alpha, “investment opportunities remain.” Check their study out for charts and the exact names of the projects that are gaining traction in spite of not receiving institutional backing. There might be future unicorns in there, yet.