26th Apr 2022
The past year proved a boom era for crypto developers, with the growth in talent in this field helping expand Web3 ecosystems. But people thinking about NFT investing are wondering what this trend could mean for NFT-related stocks. Will NFTs and crypto rise together?
Developers are flocking to Web3
The recent Electric Capital Developer Report 2021 shows astonishing growth in the number of developers working on Web3 projects1. Web3 is a new decentralized World Wide Web built on blockchain, rather than the one in use today which is dominated by a handful of major corporations. Web3 projects span a range of fields, including blockchain, cryptocurrencies, decentralized finance (DeFi), NFTs, and the metaverse – a collection of interoperable shared online worlds that allow users to move from platform to platform with the same avatar, wealth, and digital possessions.
As noted by Avichal Garg, co-founder and partner at Electric Capital, the jump in the number of developers involved in crypto and Web3 projects is significant, especially after almost 2 years of trending sideways2.
Since the beginning of 2021, over 18,000 monthly active developers have committed code in open source crypto and Web3 projects, representing a rise of 75%. That’s not including thousands more working on closed source Web3 projects3.
With 65% of Web3’s active developers and 45% of its full-time developers having joined in 2021, it’s clear that the past year was a boom year for Web3 development4.
Crypto ecosystems are expanding
So many people are pouring innovation and energy into Web3 dev, leading crypto ecosystems to grow too. The Top 200 ecosystems grew over 66%, and smaller ones grew more than 86%, in the past year. Ethereum is already the largest ecosystem and its growth continues5.
Some smaller, newer ecosystems, like Polkadot, Solana, NEAR, BSC, Avalanche, and Terra, are growing faster than Ethereum did at a similar point in its history, and Solana and Terra grew their developer forces by over 300% in 2021, with Solana growing 4.9x6.
Web3 gains aren’t just a flash in the pan
So far, the fast-growing Web3 ecosystem is holding on to its gains. Garg points out that dev numbers peak up to a year after network prices (i.e. the cost of crypto tokens) peak, and stay flat when prices fall, indicating that the developer force can be expected to rise into 2023 even if prices peak today7. This trend helps assure a continual rise in the amount of talent, innovation, and energy going into advancing Web3, which will help it grow even through bearish markets.
Despite the massive growth of the past year, there’s still a very small total number of developers working on Web3, compared with all the millions out there, so there’s plenty of room remaining for expansion. “Considering how many software engineers existing in the world, we are very early and have a LONG way to go. Web3 is just getting started,” says Garg in a tweet8.
All of which promises well for crypto. But can it have an effect on NFTs too?
What are NFTs?
There are many ways to answer the question “What is an NFT?”
On one level, we can define NFTs, or non-fungible tokens, as digital assets that are based on blockchain. By proving ownership over digital assets, they give them value and make them fully tradable and storable, just like physical assets.
On another level, NFTs are part of the broader Web3 ecosystem, working in tandem with crypto to form the foundations of the metaverse.
Crypto and NFTs share a deep bond
Sometimes, people ask “what is NFT crypto?” The chief difference is that cryptocurrencies are fungible, so any cryptocoin can be interchanged with another one without affecting the value that you own, just like any physical coin can be exchanged for another. In contrast, NFTs are non-fungible, with each NFT unique and irreplaceable.
However, both NFTs and crypto rely on blockchain, and they share much of the same infrastructure, players, and protocols.
And the bond between them has the potential to go even deeper. NFTs and crypto would be inextricably linked in a new, decentralized society. Cryptocurrencies form the underpinnings of a decentralized economy which is already rewriting the script for loans, insurance, governance, and money. NFTs, for their part, are seen as having the potential for creating a new model of community, society, and the definition of value.
A rising tide lifts all boats
As Electric Capital observes in its report, developer metrics aren’t appropriate for measuring growth in the NFT space. Community expansion and rise in engagement rates are far more accurate ways to track NFT success, especially given that a small amount of code can drive a large amount of engagement. Garg writes “In these markets, a relatively small number of developers can build reusable components and the amount of smart contract code written will be small relative to community engagement.9“
But with such a strong connection between NFTs and crypto, it’s clear that anything that bolsters one will have an effect on the other. The strengthening of Web3, including the cryptocurrencies that pay for NFT purchases and the blockchain infrastructure on which NFTs themselves rest, can only be good news for NFT companies.
And sure enough, the previous year also saw a mammoth leap in engagement with NFTs. Dan Khomenko, CEO of NFT STARS! and SpaceSwap, notes that the rising price of NFTs is thanks to broad and growing interest in the sector, not to a few high-priced sales. “Now, instead of a dozen collectors willing and able to pay millions of dollars for one piece, the market is witnessing thousands of users eager to spend on NFTs,” he says, adding “These are not the type of users who would splurge $1.36 million for Pak’s “The Pixel” but they are the ones ensuring the sustainable growth of the NFT market.10“
NFTs and crypto can go far together
With NFT engagement and crypto developer talent rising in tandem, the signs look promising for the Web3 universe as a whole, as well as all the elements within it. Many people who aren’t yet ready to buy NFTs or crypto coins themselves, or invest money in the metaverse, are considering how to invest in NFT-related company stocks.
One alternative to selecting just one or two NFT-related company stocks to buy, is to invest in an ETF like Defiance’s NFTZ, which seeks to track an index of companies involved in the infrastructure and core protocols and marketplaces of crypto and NFTs, thereby helping spread your investment across a range of stocks and helping mitigate exposure to the risk that comes with limiting your investment capital to just one or two.
For current performance and holdings, please visit defianceetfs.com/NFTZ
1 “Electric Capital Developer Report (2021)” January 5, 2022 https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d
2 Tweet, January 5, 2022 https://twitter.com/avichal/status/1478776674648944641
3 “Electric Capital Developer Report (2021)” January 5, 2022https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d
4 “Electric Capital Developer Report (2021)” January 5, 2022https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d
5 Tweet, January 5, 2022 https://twitter.com/avichal/status/1478776674648944641
6 Tweet, January 5, 2022 https://twitter.com/avichal/status/1478776674648944641
7 Tweet, January 5, 2022 https://twitter.com/avichal/status/1478776674648944641
8 Tweet, January 5, 2022 https://twitter.com/avichal/status/1478776674648944641
9 “Electric Capital Developer Report (2021)” January 5, 2022https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d
10 “‘Second Coming’ of NFTs and What Is Driving New Wave” September 7, 2021 https://www.coinspeaker.com/second-coming-nfts-new-wave/