Quantifying the thesis: web3
My last post (link) introduced a top-down modeling framework to size the 2030 DeFi middleware opportunity, specifically as it pertains to Chainlink. Given web3’s uniquely uncertain future relative to other sectors (adoption, regulations, use-case, etc.), I believe top-down models sizing specific category opportunities are more useful than building bottoms-up project-specific operating models (for long-term estimates anyway). The following exercise attempts to size the total web3 opportunity by 2030.
How?
By forecasting the web2/internet market size through 2030, and assuming web3 will capture a certain percentage share by then. This model can then be used to size specific web3 segments (L1s, gaming, consumer finance, social, etc.), which I believe can better triangulate long-term upsides for specific tokens.
How Big is Web2?
Calculating web2’s market size, or “internet GDP”, is a more difficult task than I initially expected. The internet isn’t just web applications - it requires entire sub-economies supporting infrastructure (hardware and software), professional services, data transmission, etc. I was pretty shocked to find that none of the major research organizations track/forecast this.
Except for one…(if you find others please share!)
Interactive Advertising Bureau’s (IAB) Internet GDP Report
Every four years (beginning in 2008), IAB publishes a report which aggregates US-domiciled revenue generated directly from, or adjacent to, the internet, in order to quantify its impact on the US economy. IAB defines the internet as a “digital data delivery service”, and calculates its GDP by aggregating the US revenue generated by 45 internet/internet-adjacent subsectors.
The latest edition estimated that the internet accounted for 12% of US GDP, or $2.5T, in 2020, growing at a 22% CAGR the previous four years.
For more information on each subsector, and the companies included, please refer to the full report (link).
It’s a very thoughtful and granular study, with definitions & methodologies explained in great detail, but we still have two issues: 1) the research only accounts for the US economy, and 2) the last report was released in 2021 (using 2020 numbers).
So how can we forecast global internet GDP through 2030?
US Internet GDP Build
Using the report’s 2020 revenue figures per subsector, we can build a forecast to 2030 by assuming medium-term CAGRs for each category.
How did I come up with the CAGR assumptions? Using medium-term growth estimates from a variety of research providers (below). This is more of an art than a science, since researchers have different category names & definitions, but I think estimates are directionally accurate and useful for this exercise. As a sanity check, the implied total revenue CAGR from 2020-2030 is 11%, which seems reasonable relative to the previous 22% CAGR from 2016-2020.
(google sheets link to audit backup)
2030 Web3 Market Opportunity
The model estimates US Internet GDP will be $7T by 2030. Assuming the US remains 25% of global GDP, the implied global internet GDP is $28T.
If web3 can penetrate 20% of the global internet market, it would generate $5.6T in 2030 revenue. Applying a 10x revenue multiple (reasonable for high growth assets, more below), the global Web3 market would be worth $56T (this includes both equity and tokens), 50x today’s value!
*Based on current $1.12T total token market cap + ~$200B estimated web3 public & private equity value - ~$200B stablecoin market cap
Why 10x revenue? Its the 10-year average for public cloud computing companies (which reached a high of 22x in 2020!).
As always, most won’t agree with all (or any!) of my assumptions, so I’ve included sensitivity tables below:
Even with far more conservative assumptions, its easy to believe the web3 market can at least 20x by 2030.
(If anyone has built a similar internet GDP model I’d love to connect!)
Photo cred: Dall-E