Top Predictions in the Web3 Space

We speak with Eric Pulier, founder and CEO of Vatom, a leading Web3 technology and engagement company, about what investors may want to know about the relationship between artificial intelligence (AI) and Web3, and the benefits of having comprehensive and clear regulatory guidelines for these new technologies. Pulier also shares his top predictions in the Web3 space. 

What should investors understand about the relationship between AI and Web3? 

A key principle of Web3 is decentralization. This concept doesn't just shift how we approach online interactions, it can also impact how artificial intelligence (AI) models are built and used. Enabled by blockchain technology, decentralized AI can democratize data ownership, reduce our reliance on centralized authorities and facilitate a more balanced distribution of profits among all stakeholders.

Beyond structuring how AI operates, Web3 also opens new avenues for AI to enhance user experience and security. Imagine AI algorithms identifying potential fraud schemes and alert you before you fall prey to bad actors, or helping to distinguish between human-generated and AI-created content. In the coming years, it will be increasingly difficult to determine the provenance of seemingly original content, creating a dangerous proliferation of deep fakes and unauthorized media into public networks. Imagine blockchain-based authentication of content that traces its origin back to a verified source. 

Privacy and data ownership are the pillars of the Web3 ethos, and they will likely dictate the direction of AI evolution. This could spark a surge in the application of privacy-conscious AI techniques, such as federated learning and differential privacy. These approaches are designed to let AI learn effectively from data, without intruding on personal information.

In the spirit of fostering openness and cooperation, the convergence of AI and Web3 can cultivate a more inclusive and transparent ecosystem for AI development. Imagine Decentralized Autonomous Organizations (DAOs) operating on Web3, where global contributors collaborate on AI projects. These entities would empower participants to have their say on important decisions and to enjoy a fair share of the resulting profits. In future organizations, AI will become vital to assist stakeholders in managing governance, reputation scoring and in moderating communities at scale.

The fusion of AI and Web3 is more than just a technological milestone; it's a steppingstone towards a more equitable, efficient and secure digital world.

What does the current regulatory landscape for these technologies look like (U.S. and global)? And what are the benefits of better guidelines?

In the U.S., the legal landscape around Web3 and AI remains relatively fragmented, with several agencies holding jurisdiction over different aspects.

For Web3 technologies such as cryptocurrencies and decentralized finance (DeFi), the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) often lead regulatory efforts. Their focus has primarily been on ensuring these digital assets are not used for illicit activities and don’t circumvent securities laws.

AI regulation, on the other hand, is mostly sector-specific in the U.S.. For instance, the Federal Trade Commission (FTC) governs consumer protection aspects, while the Food and Drug Administration (FDA) oversees AI in healthcare applications. A key regulatory issue here is managing the trade-off between fostering innovation and ensuring responsible AI use, particularly around privacy and fairness.

In both Web3 and AI, it is quite difficult to regulate effectively. Strong, smart regulation will dramatically increase innovation and allow the U.S. to remain competitive as exponential technologies rapidly grow to dominate the new economy. With clear guidelines, new entrepreneurs, established companies and capital groups will drive powerful new inventions and services. However, there is also the potential that poorly designed regulation or inconsistent enforcement could daunt innovation and leave the U.S. behind in the most competitive and impactful economic opportunity since the dawn of the internet.

In the case of AI, the significant impact of new AI technologies across sectors could lead to unintended consequences as automation accelerates before new training capabilities are in place. There is also a real danger in allowing certain capabilities to be widely released without safeguards, opening the door for bad actors to apply the technology to do harm at scale. In addition, as AI becomes core to our education system, it is important to put into place guidelines to protect against bias and other consequences of abdicating too much power to super-intelligent systems that could quickly dominate information dissemination. That said, the ability to put regulations in place for AI is challenging in these early stages. Even if the government bodies could understand the issues fast enough, the fledgling technology is advancing so fast that hasty regulations could become obsolete, irrelevant, or inhibit innovation by wrongly restraining necessary progress that could serve humanity in important ways. To that end, the U.S. needs to move carefully and swiftly where possible, but also encourage self-policing among responsible companies in each industry to agree on safeguards prior to government regulation being in place.

Internationally, the regulatory approach to Web3 and AI varies widely. The European Union (EU), for example, has taken a proactive stance. Its proposed Artificial Intelligence Act (AIA) aims to create a legal framework for 'trustworthy AI'. The EU's General Data Protection Regulation (GDPR) also influences the global discourse on data privacy, which impacts both Web3 and AI.

Many Asian nations, such as China and Singapore, are leading in AI technology and have initiated regulatory efforts accordingly. China has a state-centric model for AI governance, focusing on national security and technological dominance. Singapore, meanwhile, has taken a more industry-friendly approach, issuing practical guidance on AI and data usage.

In short, with the rapid evolution of both Web3 and AI, there is a pressing need for comprehensive and clear regulatory guidelines. We can neither abdicate responsibility for clear regulation nor rush into sweeping legal pronouncements that undermine the inevitable rise of new technologies and the immense power they have to improve business and society. Done properly, regulation can have immense benefits, such as:

Promoting Trust and Confidence: Clear regulations can help foster trust among consumers and businesses by providing a standardized framework for operations, reducing the risk of fraud and misuse.

Balancing Innovation and Protection: While regulations should protect consumers and maintain security, they should also avoid stifling innovation. Appropriate guidelines can strike the right balance, fostering a conducive environment for tech development while ensuring consumer interests are protected.

Ensuring Ethical AI Use: With the potential for misuse, AI regulation is crucial. Guidelines can help ensure that AI applications respect privacy, consent, and fairness, promoting ethical AI use.

Preventing Market Manipulation: In the context of Web3, clear rules can prevent market manipulation and protect investors. This can contribute to the stability and growth of decentralized finance and other Web3 technologies.

The regulatory landscape for Web3 and AI technologies is complex and multifaceted, differing across jurisdictions. As we continue to explore the potential of these technologies, the importance of comprehensive, clear and balanced regulatory guidelines cannot be overstated. Their development will undoubtedly play a crucial role in shaping the future of our digital world.

How are companies leveraging these advanced technologies? What roles do they play in improving relationships with consumers? 

We will see a continued shift to businesses leveraging Web3 and AI technologies to cultivate customer loyalty and gather data responsibly. What we’ll inevitably see is the collapse of advertising, marketing and loyalty into one, in order to connect and build more authentic connections to customers. This combination promises a new era of consumer relationships, shaped by personalization, privacy, and enhanced user experiences.

At the heart of Web3 is the idea of empowering users with control over their data. When combined with AI, this can radically transform how businesses interact with consumers. Companies can use AI to analyze user data on the blockchain, where the user has explicitly granted permission. This creates a trust-based relationship, with consumers feeling confident that their data isn't being misused.

Further, AI plays a crucial role in creating personalized experiences for consumers. Once an individual decides they want to share specific kinds of data with a company or creator, a direct, ongoing communication channel can be increasingly personalized. This is the most important opportunity in digital communications since the internet rose to become a staple of every company’s engagement strategy. With control firmly in the hands of the individual, and digital objects and wallets proliferating widely, the psychology of consumer interaction will become value instead of interruption-based. In this way, AI and Web3 will have a dramatic impact, as traditional advertising gives way to a more effective form of consumer communication.

AI's predictive analytics capabilities, coupled with the transparency of blockchain transactions, can provide companies with deeper consumer insights. They can track consumer behavior patterns and predict future trends, enabling them to stay ahead of the curve and meet consumers' needs proactively.

AI chatbots are already used widely for customer support. In a Web3 framework, these can become even more efficient. For instance, blockchain can be used to store data from past interactions securely, allowing the AI to learn and improve over time without violating user privacy, accessing only the information it has permission to utilize in every context. This can lead to quicker problem resolution and a more personalized customer support experience. Further, the use of LLMs (large language models) for assisting consumers will transform not only customer support, but training, education, and the consumer experience itself top to bottom. These language models, coupled with rapid advances in audio/voice input and output, will become increasingly conversational and natural. The AI-driven personalities (what some call “non-player characters” or “NPCs) will become highly effective at understanding a person’s needs, light years beyond the frustrating automated systems of today, and will be constantly up to date on the entire corpus of company and product information. Further these bots will be able to adjust to user sensitivities and needs, and follow up with effective communications to build long term relationships with the company.

The combination of Web3 and AI technologies offers vast potential for businesses to improve relationships with consumers. By leveraging these technologies, companies can create trust-based, personalized, and engaging experiences for consumers, ushering in a new era of consumer relations. The future of business-consumer interactions is set to be more dynamic, interactive, and rewarding for both parties.

What role does Web3 play beyond the enterprise?

When we discuss the influence of Web3, it's essential not to overlook its potential in reshaping the education sector. The current one-size-fits-all model of education is in dire need of a facelift, and the capabilities of Web3 can help accelerate that transformation.

Consider our collaboration with The Genius Group, a leading figure in the global edtech industry. By maximizing user engagement, they’ve been able to leverage the Vatom Platform to create groundbreaking educational experiences that tackle real-world issues. We're now developing expansive virtual campuses, a leap beyond mere digital spaces, that offer opportunities for innovative critical thinking and global connection with experts and peers alike.

Furthermore, Web3 technology can record significant insights about users and monitor student progress. This invaluable information empowers educational institutions to adapt coursework to individual learning styles, leading to a paradigm shift in our approach to education.

In essence, Web3 is emerging as a powerful tool in pioneering a new educational blueprint. The global 'Metaverse in Education' market is forecasted to exceed $102 billion by 2031.The use of Web3 not only results in enhanced memory retention and experiences, but also fosters the development of diverse skill sets across the educational spectrum, and will create better opportunities for communal experiences that transcend physical location. People will come together from around the world to learn from each other, perform tasks in far more experiential settings than today’s online learning environments, and develop emotional and social skills that are not taught effectively today.

One effective strategy already making waves in this field is the gamification of education, a set of proven techniques that better retain attention and boost engagement. Our recent partnership with Stanford's d.school during SXSW EDU stands as a testament to this. We collaborated to create an array of dynamic workshops and learning experiences, designed to familiarize educators with a forward-thinking approach to teaching and learning.

When thinking of Web3’s application to various sectors, it's useful to simplify some of the advantages to a few guiding principles. First, the vision that every human being controls their personal information via a secure digital wallet that serves as their identity and holds inventory. Second, that these wallets will be capable of holding dynamic digital objects that can represent anything from a coupon or concert ticket to a land title or medical record. Lastly, the wallets provide a convenient and secure mechanism to pay and get paid, in the form of fiat currency or points systems for loyalty. In this emerging model, people will join virtual communities of interest from a vast set of options—formed by companies, creators, or institutions—and participate in ways that serve both the participants and the larger group. People will earn rewards and contribute to the growth of the community, whether that’s within an educational, health or commercial context. In time, the vast majority of people will earn part or all of their living by participating in these communities and spend significant time earning value and building social relationships. You can already see this model taking shape in fledgling ways today, in the massive growth of community platforms like Discord, as well as the widespread adoption of these techniques among major brands and creators. Companies like Vatom offer seamless integrations of these key capabilities, making it easy for any enterprise or institution to set up their own Web3 communities and manage them at scale.

Web3's potential extends far beyond the realms of enterprise, holding the power to transform education by fostering engaging, personalized, and rewarding learning experiences. This is just the tip of the iceberg, as the potential applications of Web3 continue to grow and redefine various aspects of our lives.

What are your top predictions in the Web3 space? What should investors watch for? 

Over the next three years, we're anticipating a staggering $100 billion investment in this sector. This influx of capital will fuel a surge in open-source models, spawning a fresh wave of investment opportunities. The innovation in Web3 will be turbocharged by the unprecedented influx of capital into AI, much of which will be applied to Web3 use cases.

Expect more corporations and global brands to harness the advantages of persistent virtual spaces. The initial hype around gaming models set people off course in understanding the power of this trend, confusing expectations and diverting attention from what is clearly evolving to be the next generation of the Web. By leveraging already mature spatial web technology, without the need for headsets or anything other than existing hardware platforms, companies will enhance business efficiency and revolutionize how they engage with both their internal teams and external partners.

Virtualization will redefine areas like employee onboarding, conferences, hybrid work structures, and meetings. It will foster heightened engagement, productivity, and collaboration, and provide valuable data insights. The reduction in costs compared to physical meetings could be revolutionary. Combine this internal evolution with a concerted effort to gather compliant, first-party data, and we'll witness a new era of customer loyalty.

DeFi, making new kinds of financial products accessible on a decentralized blockchain network, is an exciting facet of Web3. As an investor, I would monitor the regulatory climate around DeFi and track projects with demonstrated real-world utility and security. The recent shakeout of rogue players and regulatory enforcement is not a death knell for this sector, but in fact an accelerator.

More regulation is leading to more clarity, more light shined on the dark corners, and more opportunity for new players to entire the market and innovate. Based on the incredible innovations we are seeing in this space every today, I predict that the DeFi space will explode outside of the United States in the coming years, and return to the U.S. not long after as the regulation takes shape.

DAOs are also gaining momentum in the Web3 world. More businesses and organizations are embracing the DAO model for its transparency, democratic governance, and automated operations. As an investor, look out for DAOs with robust governance structures and a clear path to value creation. The best way to get involved in DAOs is to participate in them yourself, to get a sense of the strength of the community’s commitment and the sophistication of their models. In the coming year we will see an entirely new generation of DAO systems, driven by pioneers like the brilliant author and entrepreneur Wulf Kall, that will allow organizations to ensure the long-term viability of their participatory communities with effective gamification, loyalty systems, and governance.

Given Web3's inherent decentralization and transparency, privacy and security will be at the forefront. Expect major advancements in privacy-preserving technologies such as Zero-Knowledge Proofs (ZKPs) and secure multi-party computation. Investors should focus on projects that prioritize user privacy and data security. In the coming years, we will see the emergence of self-sovereign identity that is transferable across disparate applications and organizations and the ubiquitous rollout of systems that can effectively maintain compliance across companies and regions. Companies need to be ready to comply with regulation that allows users to “be forgotten” or to access the data held about them, and further, any new data collected must not conform to different guidelines in different states and countries. Unlike in years past, we will now see every campaign and communication strategy fundamentally embed these principles and mandates into the initiative, and a new wave of companies offering solutions to help.

While investing in Web3 or AI should always be underpinned by thorough research and a consideration of your risk appetite, the combination of AI and blockchain holds massive potential and will reshape the economy in the coming years. Most companies will leverage these technologies together, leading to smarter, more efficient, and transparent systems. For investors, look out for companies that are built for mass market adoption—a key ingredient for internal enterprise and consumer adoption alike-- and have a well-articulated compliance strategy.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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