TL;DR

The Web3 space faces significant challenges in building trust and credibility. Despite advancements in security protocols and frameworks, the industry remains plagued by frauds, scams, and technical vulnerabilities, resulting in over $67 billion being stolen since 2011. While smart contract audits help address some security concerns, they fail to tackle broader risks like team credibility, legal compliance, and business model sustainability. In addition, the decentralized nature of Web3 leaves many service providers unregulated, further compounding the lack of trust.

Governments remain reactive rather than proactive, and the absence of neutral, investigative journalism in Web3 has worsened the perception of the space. A holistic, independent verification process, such as VaaSBlock’s RMA™ badge, offers a way forward, providing credibility for projects across the blockchain ecosystem, but broader efforts are needed to secure the long-term credibility of Web3.

Problem Statement – Building Trust is Web3’s biggest challenge.

The rapid development of Web3 technologies brings with it immense potential for innovation. Yet, the space remains burdened with a severe trust deficit. The absence of reliable, widespread verification mechanisms and consistent regulation has led to a rise in fraud, technical vulnerabilities, and malicious activities. While blockchain and decentralization promise open ecosystems, they also expose users, investors, and institutions to significant risks.

In this report, we present a strategic solution to these ongoing challenges: independent credibility verification. It is the missing piece necessary to secure the Web3 landscape, build trust, and foster long-term growth.

1/ A lack of Trust and Credibility.

The Web3 ecosystem is currently grappling with a severe trust deficit. Frauds, scams, and technical vulnerabilities continue to erode confidence in the space. Since 2011, a staggering $67 billion has been stolen or misappropriated from the cryptocurrency market (source: https://www.web3isgoinggreat.com/). This figure reflects the systemic risks associated with fully decentralized structures and digital assets, where the lack of centralized oversight provides ample opportunity for malicious actors. In Q1 of 2024 alone, over $824 million was lost to hacks and scam projects (source: https://hacken.io/insights/q1-2024-security-report/), underscoring the ongoing security flaws.

Additionally in 2022, nearly 90% of cryptocurrency wallet holders were unknowingly holding scam tokens, according to a Chainalysis study (source: https://www.chainalysis.com/blog/chainalysis-web3-report-preview-nfts/). This pervasive issue of fraudulent tokens circulating within the market further deteriorates trust among participants, especially newer investors who are more susceptible to misinformation and lack the tools to differentiate legitimate projects from scams. The scale of the problem underscores the need for greater transparency and stronger verification systems.

2/ An Industry still not considered Legit by many.

Despite a linear growth since almost ten years, most established industries are still reluctant to fully embrace blockchain technologies and web3 actors due to concerns over trust, regulatory ambiguity, and security risks. According to a report by Chainalysis (source: https://www.chainalysis.com/blog/chainalysis-web3-report-preview-nfts/), nearly $3.8 billion was lost to crypto-related scams and hacks in 2022 alone, highlighting vulnerabilities in the ecosystem. This still fuels perceptions that blockchain-based systems are unstable and insecure, deterring businesses from engaging. In addition, Gartner predicts that by 2025, 90% of current blockchain-based initiatives will need to be replaced or rewritten due to a lack of trust and sustainability (source: https://www.ledgerinsights.com/enterprise-blockchain-gartner-obsolete/). The significant prevalence of fraudulent activities and regulatory challenges creates friction, as traditional companies prioritize compliance and transparency, which they feel are insufficiently addressed in the decentralized space.

Without reliable oversight and neutral verification mechanisms, many Web2 entities hesitate to invest in or partner with Web3 ventures, fearing reputational damage or legal repercussions. This ongoing challenge underscores the need for trustworthy, standardized solutions to build confidence and foster collaboration between traditional and decentralized industries.

3/ Current due diligence processes are not adapted and comprehensive enough.

While most mature industries rely on extensive and strict due diligence processes led by major actors and institutions, current verification layers in place in Web3 are insufficient and incomplete. Major players such as exchanges, foundations, and banks have little incentive to spend time on thorough assessments, as they prioritize short-term profits and quick returns on investment. A PwC report reveals that 84% of traditional financial institutions cite security concerns as a major barrier to blockchain adoption ​(source: https://www.ledgerinsights.com/enterprise-blockchain-gartner-obsolete/). This rush to focus on immediate gains rather than long-term sustainability and credibility leaves the ecosystem vulnerable to fraud and security risks. The absence of standardized due diligence practices (industry standard) across the industry only exacerbates these challenges, calling for more comprehensive and robust processes.

A robust verification process such as the RMA Badge reduces risks, enhances security, and fosters trust. For exchanges, this minimizes exposure to fraudulent projects, protecting users and safeguarding their reputation. For Investors, it allows them to make better-informed investment decisions, leading to more sustainable long-term returns. Ultimately, this strengthens the ecosystem, attracting more institutional investors and encouraging broader adoption.

4/ Smart Contracts auditors: a partial solution.

A first part of the answer might come from the smart contract auditing firms. The multiplication of actors and the improvement of processes are two very promising steps toward building trust and credibility in the Web3 space. These companies provide critical technical evaluations of smart contracts, identifying vulnerabilities before they can be exploited. According to a report by CertiK, over 87% of the hacks could have been prevented with proper audits (source: https://www.certik.com/resources/blog/2022-year-in-review-crypto-wallet-security-incidents)

However, while technical audits are crucial, they do not address the full spectrum of risks associated with blockchain projects. Auditing Firms focus on the code but overlook the human element, and specifically the credibility of the development team, legal compliance, and business model viability. This gap leaves room for fraudulent projects to thrive, as bad actors can circumvent purely technical vetting processes. For the Web3 ecosystem to truly evolve, a holistic approach to credibility and security is required, encompassing both technical audits and comprehensive due diligence.

5/ Governments are not Interested (yet).

Governmental involvement in Web3 remains reactive rather than proactive. Historically, governments have only stepped in when major crimes or high-profile incidents have occurred, showing minimal interest in early consumer protection or the development of proactive regulatory frameworks. Many regulatory bodies, such as the SEC in the U.S. or the FCA in the U.K., have primarily engaged with blockchain technologies after significant frauds or security breaches. This lack of early intervention creates a reactive regulatory environment, leaving consumers and projects vulnerable to exploitation.

However, it’s important to note that governments globally are beginning to pay more attention to the space. For example, frameworks like MiCA (Markets in Crypto-Assets) in the EU show that regulators are slowly adapting. But these efforts tend to lag behind the rapid pace of technological development and often focus more on taxation and anti-money laundering (AML) measures rather than proactively securing consumer safety in the decentralized ecosystem. To foster meaningful adoption and widespread trust, governments need to shift from their post-crime involvement to more comprehensive and forward-looking regulations. This includes developing frameworks that balance innovation with consumer protection, ensuring that blockchain technologies can evolve while protecting users from the risks of fraud and malicious actors.

6/ An Absence of Journalistic Achievements and Neutral Press.

One of the most glaring weaknesses in the Web3 ecosystem is the lack of neutral and credible journalism. Many industry publications operate on a pay-for-play model, where projects can purchase coverage or feature articles. This practice has undermined the credibility of Web3 journalism, with audiences becoming increasingly skeptical of news coming from these outlets. While there are several media platforms dedicated to covering blockchain and cryptocurrency, the majority cater to the interests of those willing to pay for promotion, leaving little room for impartial, investigative journalism.

This environment has resulted in a significant lack of trust from both industry participants and the wider public. Neutral, third-party analysis of Web3 developments is rare, and notable journalistic achievements within the space are almost non-existent. In contrast, traditional industries rely on investigative journalism to uncover both successes and failures, helping to build credibility and trust. The absence of this in Web3 further alienates potential participants from more established sectors, such as traditional finance, who value transparency and accountability in media coverage.

To combat this, the Web3 ecosystem would benefit from the establishment of more independent press organizations. Such entities would need to offer unbiased reporting and deep dives into both the technological innovations and the ethical challenges within the space. This is a key missing element that, if addressed, could substantially improve the reputation of the entire industry.

7/ No control of Web3 Service Providers.

Currently, there is no centralized regulation or control over Web3 service providers such as exchanges, wallet developers, or infrastructure companies. This lack of oversight leaves consumers at risk when engaging with unverified service providers. Our PreSeed Investor Deck highlights the need for due diligence in evaluating service providers, given the estimated $4 billion USD tied up in Web3 services without any formal certification process.

VaaSBlock’s RMA™ Badge offers a solution by providing a neutral, transparent verification for Web3 service providers. This helps consumers identify reliable organizations, thereby fostering greater trust and long-term adoption.

8/ Conclusions

The Web3 space is at a critical juncture. To secure its future, the ecosystem must go beyond technical advancements and focus on credibility, trust, and comprehensive verification. As mentioned in the Blockchain Security Alliance’s 2023 report (source: https://beosin.com/resources/Q1_2023_Global_Web3_Security_Report.pdf), with the right mechanisms in place, including neutral certification and rigorous due diligence, the industry can overcome its current challenges and fulfill its potential as a transformative force in the global economy.

One solution is the RMA™ badge (Risk Management Authentication) delivered by VaaSBlock, which has emerged as a significant mark of credibility within the blockchain industry. This certification sets a new benchmark by offering comprehensive verification that aligns with each organization’s unique role, making sure that only the most reliable builders and service providers are recognized. The RMA™ is a step in that direction, but more needs to be done to secure the long-term credibility of Web3.