Web3 funding shift: NFTs, RetroPGF and on-chain models gain traction
Alternative funding expands
The traditional venture funding model fails to keep up with growing Web3 startups
Despite a recovery in venture funding volumes in the second half of last year, this startup support model varies by industry and region and remains inaccessible to many Web3 projects.According to Meg Lister, CEO of Grants Labs at Gitcoin, the traditional venture funding model is failing, causing many promising projects to collapse due to a lack of capital.
The biggest conflict lies between the experimental nature of Web3 projects—aimed at creating public goods and social impact—and the profit-driven, short-term growth priorities of venture investors.
Another issue contradicting Web3's principles is the centralized decision-making power of major venture funds, which stands in opposition to the decentralization encouraged by the crypto community.
In practice, venture funding primarily flows to organizations launching their own tokens. As a result, developers of infrastructure tools and L2 solutions have a higher chance of securing funds than applications without tokens.
Alternative funding expands investor base
According to Meg Lister, alternative funding models—such as retroactive public goods funding (RetroPGF), fractional financing through NFTs, community venture capital, on-chain ownership, and more—could help balance the investment landscape.
For example, Optimism successfully raised $2 billion through RetroPGF, while Tornado Cash benefited from a model where micro-investments from a large number of users were well rewarded. A growing number of Web3 projects are using NFTs to tokenize contributions and incentivize governance participation.
This diversity in investment models is fostering a broader group of investors who believe in a project's mission and long-term growth trajectory.
As we wrote, Web3 and Web 3.0 allow users to not only consume content, but also participate in its creation and management, using technologies such as blockchain to ensure security and transparency. In the increasingly digital sphere, these technologies offer a new way of interaction that gives users greater control and confidence in the security of their data.
