Between DeFi, play-to-earn games, and the NFT ecosystem, it is clear that crypto is emerging with real use cases, broad-based appeal, and both utilitarian and entertainment value. There is no arguing that decentralized app (“dApp”) and Web3 adoption, regardless of how niche the nature of that adoption feels, is a monumental step for the crypto ecosystem - something we should all celebrate.
However, Web3’s dApp layer is still riddled with adoption friction due to an underdeveloped infrastructure layer. Here’s an example. Your favorite artist is dropping a new set of NFTs, but you’ve never used crypto before. Oh, don’t worry, it’s an easy process:
Given these deficiencies in infrastructure, the reality is that the majority of new dApp adoption is driven by those who already have had significant crypto gains. Those who aren’t crypto native or tech savvy are lost somewhere in the above steps.
Remember the first step from above when buying an NFT? That single step was probably composed of its own 10 steps before Coinbase recognized the difficulty of buying/storing crypto and abstracted away the complexity. Coinbase has since onboarded ~70M new crypto users and $180B of assets. Clearly, unlocking access is valuable. Let’s extend the Coinbase analogy to the current state of Web3. In order to unlock the next wave of Web3 users, we need to further abstract away complexity through infrastructure improvements that bridge non-crypto to crypto. I call this the Crypto Bridge.
Before we get into the Crypto Bridge, let’s do a quick refresher on the Web3 Stack. Multicoin Capital first wrote about the Web3 Stack in July 2018 then released a revised version 18 months later in December 2019. Multicoin includes an incredible amount of detail (you should dive in if interested), but for our purposes I have simplified the Web3 Stack to four primary layers: the dApp Layer, the Middleware Layer, the Infrastructure Layer (base layer and layer 2), and finally the Internet Protocol:
The Crypto Bridge:
The Crypto Bridge serves as a bridge between existing centralized entities and the fully decentralized Web3 Stack, largely intersecting at the dApp Layer. As of now, the majority of these layers are composed of centralized companies, but over time I believe that they will become fully decentralized. For example, KYC could eventually become a self identity solution where tokens are used to access each individual’s verified identity NFT. Once that solution becomes decentralized, it will shift from the Crypto Bridge Stack to the Web3 Stack as a Base Layer Protocol.
Over time, as the Web3 experience improves, the layers of the Crypto Bridge Stack will be consumed by the Web3 Stack until the entire functionality is driven off of intraoperative and decentralized protocols. The fully decentralized Web3 future is many app-infrastructure-app cycles away and the infrastructure currently required to increase crypto adoption is actually infrastructure within the Crypto Bridge.
The current Crypto Bridge Stack is composed of six different layers:
We are seeing the Crypto Bridge flourish to support Web3 applications with a number of companies in each category. As new users adopt Web3 experiences, we will see progress shift back to infrastructure (likely decentralized infrastructure) to further support Web3. Crypto development will continue in this cycle until the fully decentralized Web3 Stack is complete.
I’m excited to see the ultimate development of the Web3 infrastructure. Web3 promises to bring transparency to the internet, ultimately allowing end users to understand each party’s incentives, which is done by integrating transparent economics directly into an application. The Crypto Bridge will be an important part of the journey to increase adoption. I am spending quite a bit of my time researching the space and am excited to connect with those that are building the Crypto Bridge or meditating on the space.
1. I am a personal holder of BTC, ETH, AXS, YGG, XYZ and other tokens which aren’t relevant for this post. Canaan Partners is an investor in Rally, Forte, Paxos, Skale Labs, y.at, and Commonwealth.
2. Thoughts condensed through conversations with Bela Pandya at Rally.io, Taylor Monahan at MyCrypto, Edward Woodford at ZeroHash, Jonathan Kelfer at NYDIG, Asad Khaliq at Acrew, Eric Ong at Lightbank, and my colleagues Jared Newman and Brendan Dickinson. Special thanks to John Necef for editing.