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Web3 Security Investment Thesis
- Smart contracts are enforced by lines of strict code in multiple languages and highlight vulnerabilities and help the development team resolve this to maintain security.
- Notable security actions within the space include LayerZero’s $15 Million Bounty program, Euler Finance’s $1.25 Million Audit contest, and Uniswap’s $3.25 Million Audit contest.
- Major players in the smart contract security audits space are Spearbit, OpenZeppelin, and QuillAudits, securing upwards of $100B in TVL and reporting high percentages of YoY gains.
- The global Web3 security market is projected to reach $15 billion by 2027, with a CAGR of 25%, and driven by the explosion of DeFi, NFTs, and smart contract usage.
- Audits are becoming a mandatory prerequisite for DeFi projects seeking to list on major decentralized exchanges and centralized exchanges, with over $2 billion in assets audited in 2022 alone.
- Leading firms like CertiK and Quantstamp have reported revenue growth exceeding 300% year-over-year, with the revenue model of Web3 security firms comprising one-time audit fees, recurring contracts, and automated auditing tools.
- As regulatory frameworks mature, the demand for audited, secure protocols will grow, making security firms indispensable to the infrastructure of the next generation of Web3 products.
- Projects that undergo formal smart contract audits see an 80% decrease in post-launch vulnerabilities, resulting in a 10x increase in institutional confidence and capital inflows.
- The rise of DeFi, NFTs, and blockchain in enterprise use cases is generating unprecedented security demands, and smart contract audits have evolved from a “nice to have” to a fundamental requirement.
- Early-stage investment in this sector presents a unique opportunity for significant returns, with the market projected to grow at a significant pace, yielding 5x to 10x returns over the next 3 to 5 years.
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