Mapping the Web3 Abyss

The titular abyss in the manga and anime series Made in Abyss is a large pit of about 1,000 meters in diameter and at least 20,000 meters deep. Its seven layers are packed full of ancient artifacts of unfathomable value, natural wonders, and terrifying creatures.

While it's safe for delvers who want to explore the mysteries of the abyss to climb down (not taking the predatory creatures into account), one is immediately struck by the strains of ascension upon attempting to climb back up again. The strains of ascension range from headaches and nausea over profuse bleeding to certain death (for those who are lucky) or loss of humanity (for those who are unlucky) on the lower layers.

To those who delve into the Web3 economy, the story of the abyss sounds eerily familiar. After all, there is a reason for the term "falling down the crypto rabbit hole", which of course, is a reference to Alice in Wonderland and The Matrix. In reality, though, it's a slow descent through multiple layers of this fascinating and sometimes outright frightening industry. And naturally, getting back up becomes increasingly harder the lower you climb down.

What Is the Web3 Abyss?

Before we take a look at the different layers of the Web3 abyss, let me briefly explain its mechanics.

The layers are ordered by the amount of industry knowledge it takes to fully explore the layer. Anyone who has reached sufficient knowledge to fully understand all of the phenomena present in a layer is said to have reached the bottom of the layer and can continue to climb down to the next layer. Of course, getting your own feet wet and investing in some of the projects on a layer helps you in this process, but it’s generally a good idea to do your own research first.

You can communicate with people who are above you, but the messages you are sending become increasingly cryptic and unintelligible the more you are apart from the recipient. The messages you get back, especially from the surface, become increasingly irrelevant to you.

The layers are not static and can switch places occasionally. Over time, a previously hidden deep layer may come to the surface.

By "gazing into the abyss", it is possible to see some of what's on the next lower layers and, depending on your eyesight, you can see more or less of what's going on below. The abyss gets darker though with each layer. Adhering to Friedrich Nietzsche's famous proverb, you will eventually be pulled down to the next layer by gazing into the abyss for too long.

Layer 0: The Surface Surrounding the Abyss, AKA Normie City

This is where those who are not delvers reside. Some recognize the big gaping hole in the middle of their city but are generally not interested in what it contains. Some even choose to outright ignore the Web3 abyss. But there are also those who stand on the rim of the abyss and gaze right into it and will eventually become delvers themselves.

Layer 1: The Great Protocol Plains

The first stop for budding Web3 delvers is to come into contact with the largest protocols in the space, namely Bitcoin and Ethereum. Some delvers on this layer already learn, oftentimes in painful lessons, how to set up their own self-hosted wallet. Others feel more comfortable keeping their coins on a centralized exchange. Which of both options is safer is heatedly debated.

Occasionally, smaller cryptocurrencies will come to the surface and catch the attention of delvers. In 2020 and early 2021, for instance, Tezos had a short-lived visit there. Later in 2021, Tezos was replaced by Dogecoin and Shiba Inu.

What you can find here: Bitcoin, Ethereum, the coin of the day.

Common dangers: loss/theft of private keys, exchange hacks/bankruptcy, theft of exchange credentials, cryptocurrency volatility.

Layer 2: The NFT Meadows

NFTs have most recently surfaced to this layer in 2021. Undoubtedly, this is the most colorful layer in the whole Web3 abyss, packed full of NFT games and digital art, or what some delvers claim to be “art”. Some of the less colorful projects here try to use NFT technology for other use cases than digital art and gaming, for example, tokenizing physical assets.

This is also where the danger of falling into degeneracy becomes present for the first time. Only spend a healthy amount of your time here, and do not make investments if you can’t bear a total loss! Beware: not every flower smells as sweet as a CryptoPunk.

What you can find here: NFT games, digital art, metaverse projects, novel NFT use cases.

Common dangers: scams, copycat projects, counterfeit NFT collections, NFT degeneracy.

Layer 3: The Stablecoin Tundra

Although significantly less colorful than the NFT meadows, stablecoins are a key part of Web3 infrastructure, as they provide you with a method of selling your coins in preparation for a bear market without having to convert them to fiat.

You can also find a few centralized merchants that offer you an interest rate on your stablecoin deposits, but make sure to pick a trustworthy one. Most lately, several large CeFi lenders went out of business, leaving their creditors at a loss.

What you can find here: centralized stablecoins (USDT, USDC, BUSD), overcollateralized stablecoins (DAI), CeFi.

Common dangers: CeFi bankruptcy.

Layer 4: The Infrastructure Factory

This is where the smaller Web3 protocols reside. Examples include alternative L1 smart contract platforms, Ethereum’s various L2 protocols, as well as a wide array of consensus mechanisms for all kinds of blockchain use cases. This layer also houses most of the workers in the Web3 industry.

While it’s generally safe to explore and invest in this layer, note that volatility becomes significantly stronger than the volatility you are used to from the great protocol plains.

What you can find here: L1s, L2s, “Proof-of-X” protocols.

Common dangers: increased volatility.

Layer 5: Lake DeFi

Surrounding a picturesque lake, you can find the most common use cases for decentralized finance (DeFi). This includes lending, overcollateralized decentralized stablecoins, and decentralized exchanges (DEXes). Swimming across the lake, you find the entrance to a deep and dark cavern that contains the more obscure DeFi use cases, such as insurance, uncollateralized lending, tokenization, and algorithmic stablecoins.

Getting closer to the bottom of the cavern, you finally reach an inn whose windows radiate a deceptively golden glow. Tired from your journey, you decide to take a rest. You notice that the delvers who populate the inn speak in a barely-human language, but oddly, you can understand most of what they are saying.

You wonder: Do you sound like this to the people on the surface once you come back up? Do you even want to go back up? No. You have seen the blandness of the surface. And you have seen the wonders of the Web3 abyss. You begin to realize that you have reached a point of no return.

As you mingle with your fellow delvers, you learn that most of them have been the victim of a DeFi hack or rug pull at least once. Maybe you have your own story to tell. You notice delvers rushing in and out of a secluded door at the backside of the inn. A sign above the door reads “IDO Platform”.

Curious as you are, you decide to explore and suddenly, you find yourself in a huge gambling den. This is where new cryptocurrencies are born every day and most of them die just as quickly, much to the dismay of those who put their savings on them. But those that survived and thrived have made their early investors fortunes. Having taken a few of such gambles yourself, you notice that the wins and losses become increasingly irrelevant though.

What you can find here: basic DeFi use cases, advanced DeFi use cases, shitcoins.

Common dangers: hacks, rug pulls, shitcoins, DeFi degeneracy.

Layer 6: The DAO Archipelago

Descending into the next layer, you find a bunch of small villages that cling to the edges of the Web3 abyss. From high above, they look like tiny islands in a vast sea of darkness. As you descend further down and uncover more and more of them, you wonder how many of these islands there may be.

You decide to explore some of the islands. The village-dwellers speak in an even stranger language than the folks in the DeFi inn, but they are all friendly and welcoming. You agree to help them out on a few tasks in exchange for some of the local currency. It’s not much, but it helps you survive.

The inhabitants are constantly working on building out their villages and building bridges to other islands, but overall, they live happy lives. You decide to stay a little bit longer and help them. You enjoy staying there and building out the villages, but some of the older inhabitants warn you not to overwork yourself.

What you can find here: Decentralized Autonomous Organizations.

Common dangers: mental health issues, DAO degeneracy.

Layer 7: The Bottomless Pit

After working on some of the islands for god knows how long, I finally decided to dive down into the seventh layer of the Web3 abyss. It’s dark and I can’t see very far. I can’t see the bottom, so I don’t know if this layer is the end of my journey, or if there are more layers below this one. I can’t even tell how far I have already climbed down.

The things I have seen here are magnificent, intriguing, and utterly horrifying at the same time. It’s hard to describe them in words though, at least in words I think you would understand.

Man, I can’t wait to tell the villagers about all of this.

On second thought, I guess I’ll just stay here and wait for you to find me.

I will be waiting.

I will be waiting.

What you can find here: ???

Common dangers: complete degeneracy.