VCs clash over non-financial use cases in Web3 and crypto

The Web3 venture capital landscape is increasingly polarized, characterized by a fundamental ideological clash regarding the future trajectory of decentralized technologies. While the successes of Decentralized Finance (DeFi) have cemented crypto’s status as a formidable financial infrastructure, a growing contingent of VCs argues that the technology’s true, long-term disruption lies in non-financial primitives, specifically identity, governance, and social applications.

This schism pits the ‘Non-Financial Optimists’ against the ‘Financial Primitives Realists.’

Proponents of non-financial Web3 adoption, often representing firms focused on consumer-facing technology, emphasize that the path to mass adoption is contingent upon superior user experience and utility decoupled from monetary speculation. Key areas championed include Decentralized Identity (DID), decentralized social networks (DeSoc), and Web3 gaming. Their argument posits that the current financial emphasis—while profitable—is too niche and too complex for the average consumer. They view gaming and identity management as the necessary Trojan horses for mainstream integration, believing the inherent trust and immutability of blockchain will eventually prove critical for digital ownership and data privacy.

Conversely, the ‘Financial Primitives Realists’ maintain that market maturity and viable business models are overwhelmingly concentrated in financial applications. They point to the demonstrable Total Value Locked (TVL) and clear revenue generation models found in lending protocols, stablecoins, and derivatives platforms. Skeptics argue that non-financial use cases often struggle with poor scalability, regulatory ambiguity concerning data ownership, and a lack of proven paths to monetization outside of token incentives. They stress that the infrastructure supporting efficient liquidity (L1s, L2s, and interoperability protocols) will remain the highest value investment, as these rails are necessary regardless of the application layer.

Analysis of recent funding trends reveals this tension. While core DeFi investments have slowed, the bulk of massive Series B and C rounds still favor foundational infrastructure that primarily supports financial throughput. However, seed funding is showing a notable shift, with VCs placing targeted, high-risk bets on non-financial protocols in the belief that the ‘killer app’ for Web3 adoption will likely not be a financial product. This bifurcation suggests that VCs are simultaneously prioritizing short-term financial viability while hedging for a monumental, long-term shift in digital interactions and governance—a shift that remains highly theoretical but carries the potential for massive returns.

Source: VCs clash over non-financial use cases in Web3 and crypto