How Web3 Measures Digital Ownership

Web3 and the digital assets that represent it are characterized by open, autonomous and decentralized technologies within internet ecosystems that enable trustless infrastructure and remove intermediaries and central monopolies, CoinDesk Indices' Jodie Gunzberg writes.

AccessTimeIconJul 14, 2022 at 6:47 p.m. UTC
Updated Jul 25, 2022 at 3:13 p.m. UTC

Jodie Gunzberg, CFA, is the Managing Director of CoinDesk Indices.

Key Takeaways

Web3-based digital assets:

  • enable defi and trustless infrastructure;
  • are open and autonomous; and
  • and remove financial intermediaries.

A Power Shift: What is Web3

Web3 – also known as “Web 3.0” or “Web 3” – is a term that has become increasingly popular and synonymous with the next stage of internet technologies. The new stage is exemplified by advances in the development of digital assets.

Web3 describes the next generation of the internet that allows users to participate beyond reading, enabled by Web 1; and writing; enabled by Web 2.0. For example, in the 1990s, Web 1 was comprised mostly of a collection of links and homepages that were readable but not particularly interactive.

In 2004, Web 2.0, then the next evolution of the internet, allowed people to not only read content, but also create their own and publish it on blogs and various social media channels.

As people became better informed on how their personal data was collected and used by the publishing, social media, and the big tech, a greater awareness and need arose for more privacy, ownership, and control of individual information and content.

Therefore, Web3 emerged as the next iteration of the internet that aims to reduce dependency on large technology companies using decentralized protocols. Web3, therefore, can be seen as a power shift from big tech to consumers and the greater public.

Evolving Stakeholder Dynamics in Decentralized Finance

The digital assets that represent Web3 are characterized by open, autonomous, and decentralized technologies within internet ecosystems that enable trustless infrastructure and remove intermediaries and central monopolies.

This gives individual users power and ownership over their data, identity, digital assets, security, and transactions. They can participate in the governance and operation of protocols as participants and shareholders, not just customers or products.

Web3 technologies can run autonomously with no need for a centralized organization to maintain their operation; this frees up creative resources to build out a universe of decentralized financial tools and applications (dApps). Using decentralized applications, users can leverage their digital ownership and online footprint through their Web3 interactions.

Web3 Digital Assets in CoinDesk Indices' DACS

According to CoinDesk Indices’ Digital Asset Classification Standard (DACS), the standard for defining the industries of digital assets, Web3 is not defined as an industry, industry group or sector. Rather, it is comprised of a diverse set of digital assets across industry groups.

The index that represents digital assets within the Web3 ecosystem is called CoinDesk Industry Group Select Equal Weight Index (DIGS). DIGS measures the performance of the largest digital asset in each industry group defined by DACS that meets certain market capitalization, trading, and custody requirements. It also excludes stablecoins and meme coins.

Web3 covers a broad range of applications that extends beyond one industry, industry group, or sector within DACS. So, a digital asset is eligible for inclusion in the DACS Index Universe, if it is ranked in the top 200 in the most recent DACS report. But this is not the only requirement for inclusion in the Index.

There are two critical criteria that directly impact eligibility for inclusion in the Index: investability and liquidity. Based on these two criteria, eligible digital assets must:

  • have an average market cap of $1.5 billion over the seven days leading up to the reconstitution;
  • be listed on three eligible exchanges with custodian services available from Coinbase Custody; and
  • be accessible by U.S. investors.

Key Assets in DIGS

In the spirit of size, liquidity, and diversification across Industry Groups, the Index constituent selection process, which reconstitutes quarterly, targets the largest digital asset from each Industry Group, subject to a buffer rule to reduce turnover.

At its inception date of April 4, 2022, the index is made of ten digital assets included in DIGS, each representing a unique Industry Group: Oracle (LINK); Shared Storage (FIL); Private (ZEC); Transparent (BTC); Credit Platform (AAVE); DAO (MKR); Exchanges (UNI); Metaverse (MANA); Multi-Chain / Parachain (AVAX); and Single Chain (ETH).

Conclusion

Web3 is an extremely important advancement to the functionality of the internet that allows users to participate in it beyond reading and writing by owning their personal content to reduce dependency on large technology companies.

This has become possible through the use of decentralized protocols. It gives individual users power over their data, identity, digital assets, security, and transactions.

Although Web3 is not defined by DACS, it nevertheless helps investors navigate the full stack of Web3 applications through its sector, industry group, and industry taxonomy.

The CoinDesk Industry Group Select Equal Weight Index (DIGS) gives investors greater transparency into the value of digital ownership in the world of Web3 and offers a framework to them to access the most liquid and investable assets in this space.

Relevant Indices

CoinDesk Industry Group Select Equal Weight Index (DIGS)

Disclaimer:

CoinDesk Indices, Inc. (“CDI”) does not sponsor, endorse, sell, promote or manage any investment offered by any third party that seeks to provide an investment return based on the performance of any index. CDI is neither an investment adviser nor a commodity trading advisor and makes no representation regarding the advisability of making an investment linked to any CDI index. CDI does not act as a fiduciary. A decision to invest in any asset linked to a CDI index should not be made in reliance on any of the statements set forth in this document or elsewhere by CDI. All content contained or used in any CDI index (the “Content”) is owned by CDI and/or its third-party data providers and licensors, unless stated otherwise by CDI. CDI does not guarantee the accuracy, completeness, timeliness, adequacy, validity or availability of any of the Content. CDI is not responsible for any errors or omissions, regardless of the cause, in the results obtained from the use of any of the Content. CDI does not assume any obligation to update the Content following publication in any form or format. © 2022 CoinDesk Indices, Inc. All rights reserved.


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Jodie Gunzberg, CFA, is the Managing Director of CoinDesk Indices.

CoinDesk - Unknown

Jodie Gunzberg, CFA, is the Managing Director of CoinDesk Indices.