The year 2022 will be the year of Web 3, some say. If that’s the case, it is a long time coming. Contrary to the belief that this is a new, Ethereum-era concept, the idea of Web 3 goes back two decades. In today’s column we dissect that history and talk about what it says about the current era of crypto-based Web 3 projects’ prospects for success or failure.

In this week’s “Money Reimagined” podcast, my co-host Sheila Warren and I talk to Sara Pantuliano, chief executive of ODI, a member of the United Nation’s Secretary-General’s Sixth Advisory Group of the UN Peacebuilding Fund and of UNFPA’s ICPD25 High-Level Commission; and Sasha Kapadia, director of Humanitarian and Development at Mastercard. The topic was an old chestnut of crypto discussion: financial inclusion and how digital currencies and crypto solutions may (or may not) help move money more effectively into communities that need it.

Have a listen after reading the newsletter.

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Rachel Sun/CoinDesk

With all the attention – and divisive debates – around Web 3 this past month, you might think the idea of a third, more decentralized internet era is entirely new.

In truth, “Web 3.0” has been part of a two decades-long discussion around the societal, cultural and political distortions created by the dominance of big internet platforms such as Google and Facebook and around the negative impact of Web 2.0’s data-driven economics. It long precedes the latest crypto-based iteration as Web 3, which Ethereum and Polkadot co-founder Gavin Wood spearheaded via a 2014 blog post that CoinDesk republished last week.

Both sides of this raging debate have reasonable points of view. There’s the Chris Dixon position that Web 3 projects are creating real value and the countervailing Jack Dorsey position that the term is just a buzzword exploited by venture capitalists to boost their equity and token investment.

That smart people – including two famous “Tims” (discussed below) – have been exploring an exit from Web 2.0 for so long suggests Web 3 projects have worthy ambitions and that there will be public benefits and business payoffs if they succeed.

On the other hand, this long history reminds us that solving a very big problem is hard and that investors would be wise to take grandiose promises with a grain of salt.

Setting aside any opinion you might hold on either of these positions, it’s important to focus on the core structural issues with Web 2.0 and why there’s a need to change them. Doing so reveals a fundamental problem that’s crying out for a Web 3 advance: the misalignment between the interests of the giant companies that dominate the internet and those of the general public.

Blockchain technology can help address that, but it is by no means the only part of the solution or necessarily the most important part. We need a mix of technologies (both decentralized and centralized), regulation and economic rationale to enable business models that bring those competing private and public interests together.

But first, the question of how we got here requires a look at the long history of Web 3.

Read the rest of this column here.

Amid the weakness in bitcoin and other crypto assets during the latter part of 2021 and early 2022, there’s been an anomalous counter-performance by the decentralized finance (DeFi) sector. The last few weeks have seen a modest rebound in total value locked, a measure of how much digital asset value has been collateralized for loans in the DeFi system. CoinDesk’s Shuai Hao whipped me up this chart, based on data from DeFi Pulse, which shows TVL, as expressed in ether, versus the value of the CoinDesk Indices' DeFi (DFX) index.

It’s too early to say whether the rebound in TVL will meaningfully reverse the declines in DeFi commitments seen since last spring. However, it’s notable the value has increased despite close to no rebound in dollar prices. We will have to see whether the sector can return to the unbridled enthusiasm of a year ago, or whether the zeitgeist has been lost to NFTs.

The Conversation

Inflation Twitter

This week the Conversation departs from Crypto Twitter – we are assured it’s safe to do so – and ventures into Economics Twitter, or into what for now I’m calling “Inflation Twitter.” For every economist and economics writer in the U.S., the burning question of the moment is whether the Federal Reserve can engineer a so-called “soft landing.” This is the idea that either through “jawboning” commentary or by actively pushing up interest rates, the central bank successfully eases the inflationary pressures and is able to maintain a reasonably accommodative monetary posture after that. By contrast, a “hard landing” would be a failure, where inflation gets out of control requiring much tougher measures in the future to contain it, measures that would push the economy into recession.

Fundamental in that question is the degree to which the current inflation trend is “transitory” – a temporary phenomenon brought on by coronavirus pandemic era supply chain disruptions. If it is, that will make the Fed’s job easier. But if the recent rise in prices has shifted people’s expectations for future inflation, it could alter their behavior, prompting pre-emptive moves on wage negotiations or price hikes that create a more pernicious self-fulfilling phenomenon that’s harder to control. .

Here’s Janney’s Chief Fixed-Income Strategist Guy LeBas laying out how he sees the Fed’s balancing act as it tries not to overly spook markets.

Here’s Washington Post columnist and media commentator Catherine Rampell reviewing economists’ views on whether an alternative approach, one that requires political action against dominant monopolies (popular in some sectors of the U.S. Congress with regards to the likes of Amazon and Facebook), would serve the same price-moderating ends. Their responses are pretty unequivocal.

Finally, from economist Noah Taylor, a glass-half-full assessment of the outlook based on people’s inflation expectations.

It’s interesting to think how bitcoin plays out in the different hard versus soft landing scenarios. BTC has clearly been treated as a risk asset of late, rising and falling in tandem with stocks and other traditional markets as policy speculation has waxed and waned. But if inflation were to get out of control, would bitcoin be perceived as a hedge or would the risk of an even tougher investment climate in the longer-term scare off crypto speculators?

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It turns out the Trump Administration may have been more proactive on a so-called “digital dollar” than previously thought. A CoinDesk investigation this week revealed that Jared Kushner, special adviser to the president and Donald Trump’s son-in-law, was discussing the idea with Treasury Secretary Steven Mnuchin as early as May 2019. Previously, it was thought that discussion of central bank digital currencies (CBDCs) didn’t pick up until late 2019, after Facebook made its Libra announcement and China got serious about its digital yuan.

Based on a freedom of information (FOIA) request for Mnuchin’s crypto-related emails, the investigation also revealed:

The lengths the crypto industry went to try to stop Mnuchin from launching a widely discredited, last-minute proposal requiring exchanges to collect know-your-customer (KYC) data on “user-hosted” cryptocurrency wallets.
That Ukrainian officials lobbied for Coinbase, Bittrex and Gemini to reinstate their exchanges in that country.
That Treasury had planned an extensive series of meetings with crypto leaders, only for the program to die in the wake of the COVID-19 outbreak.
That several key crypto industry players enjoyed long-standing relationships with members of the Trump Administration.