NextBull Market Drive: A Review of Web3 Consumer Application Mainstream Paradigms, Opportunities, and Challenges

Author: @Web3Mario

Abstract: The two-year-long, macro tailwinds-driven return of crypto speculation seems to have come to an end as market sentiment has been sluggish lately, with potential policy dividends gradually falling short of expectations, and a series of celebrity memecoins such as Trump harvesting the liquidity of the crypto speculative market. In this regard, more and more investors and believers have begun to think about the next value narrative of the Web3 industry, and the Web3 consumer application track has become the focus of many discussions. So during this time, I have been thinking about Web3 consumer applications. I hope to share some of my experiences with you. In this article, we will provide an overview of the current mainstream paradigm of Web3 consumer applications, and explore the opportunities and challenges of each. In the follow-up articles, the author will continue to share some specific market opportunity insights and ideas, and welcome friends to communicate with the author.

What is a Web3 Consumer Application? The so-called Consumer Application, that is, To C application in the Chinese context, means that your target users are most ordinary consumers, not enterprise users. Open your App Store and all the apps in it fall into this category. Web3 Consumer Applications, on the other hand, refer to consumer-facing software applications that have Web3 characteristics.

In general, according to the categories in most App stores, we can roughly divide the entire consumer application track into the following 10 categories, and each category will have different subdivisions. Of course, with the maturity of the market, many new products will combine multiple features to a certain extent in order to find their own differentiated selling points, but we can still make a simple classification according to their core selling points. What are the current Web3 consumer application paradigms and their respective opportunities and difficulties? As of now, I believe there are three common paradigms for Web3 consumer applications:

1. Take advantage of the technical characteristics of Web3 infrastructure to optimize some of the problems existing in traditional consumer applications This is a common paradigm, and we know that a lot of investment in the Web3 industry revolves around infrastructure construction, and application creators who adopt this paradigm want to take advantage of the technical features of Web3 infrastructure to enhance the competitive advantage of their products or provide new services. In general, we can classify the benefits brought by these technological innovation directions into the following two categories:

( 1 ) Ultimate privacy protection and data sovereignty

Opportunity point: The privacy track has always been the main theme of Web3 infrastructure innovation, from the initial asymmetric encryption algorithm identity confirmation system, gradually integrated many software and hardware technologies, such as ZK, FHE to TEE, etc. The tech giants in Web3 seem to be taking it to the extreme, aiming to create a network environment that doesn’t rely on third-party trust at all, and provides users with the ability to interact with information or value. The most direct benefit of this technical feature is that it brings data sovereignty to users, and personal privacy information can be directly hosted in local trusted software and hardware devices, avoiding the leakage of privacy information. There are many Web3 consumer applications optimized for this technical feature, and any project that claims to be a decentralized XX belongs to this paradigm, such as decentralized social media platforms, decentralized AI models, decentralized video websites, and so on.

Difficulty: After years of market verification, it can be said that there is no obvious advantage in the market competition as the core selling point, for two reasons, one is that the importance of consumer users to privacy is based on the occurrence of large-scale privacy leakage and infringement incidents, but in most cases, through the formulation of more perfect laws and regulations, it can effectively alleviate this problem, so if the protection of privacy is based on a more complex product experience or more expensive use cost, its competitiveness will be obviously insufficient. Second, we know that most of the current business models of consumer applications are based on the extraction of value from big data, such as precision marketing. Overemphasizing privacy can destabilize mainstream business models, as user data will be scattered in silos, which makes it difficult to design a sustainable business model, and if you end up relying on so-called “tokenomics”, you will have to introduce unnecessary speculative attributes to the product, which will distract the team’s resources and energy from dealing with the impact of this attribute on the product, and on the other hand, it will be detrimental to the search for PMF, which will be analyzed in detail below.

( 2 ) Low-cost, global, all-weather trusted execution environment

Opportunity: The emergence of multiple L1s and L2s provides application developers with a new, global, and multi-party trusted application execution environment that runs around the clock. Normally, traditional software service providers maintain their own programs independently, such as running on their own server clusters or clouds, which naturally brings trust costs to businesses involving multi-party collaboration, especially when the strength or scale of multiple parties is evenly matched, or when the data involved is particularly sensitive and critical, and this trust cost usually translates into huge development costs and user use costs, such as cross-border payment and other scenarios. Leveraging the execution environment brought about by Web3 can effectively reduce the costs associated with running such services. Stablecoins are a great example of such applications.

Difficulty: From the perspective of reducing costs and increasing efficiency, this is indeed a competitive advantage, but it is difficult to explore application scenarios. As mentioned above, it is only in a service where multiple parties are collaborative, the parties involved are independent, the scale is evenly balanced, and the data involved is particularly sensitive, that the use of the execution environment brings benefits, which is a more demanding condition. At present, it seems that most of these use cases are concentrated in the financial services sector.

2. Use crypto assets to design new marketing strategies, user loyalty programs, or business models Similar to the first point, application developers who adopt this paradigm also hope to add a competitive advantage to their products in a relatively mature and market-proven scenario by introducing Web3 attributes. It’s just that these app developers are more interested in introducing crypto assets and using the extremely high financial attributes of crypto assets to design better marketing strategies, user loyalty programs, and business models. We know that there are two kinds of value of any investment target, commodity attribute and financial attribute, the former is related to the use value of the target in a certain actual scenario, such as the habitable property of real estate assets, while the latter is related to its transaction value in the financial market, which usually comes from the speculative scenario brought about by circulability and high volatility in the field of crypto assets. Crypto assets are an asset class whose financial attributes are much higher than those of commodities. In the eyes of most of these app developers, the introduction of crypto assets usually brings three benefits:

( 1 ) Reduce customer acquisition costs through token-based marketing campaigns such as Airdrop

Opportunity point: For most consumer applications, how to acquire customers at low cost in the early stage of the project is a key issue. After all, compared with directly using real money to buy traffic, do exposure, and use the Token created at zero cost to capture users is indeed a more cost-effective choice, from a certain point of view, this kind of Token is similar to an advertising Token. There are many projects that adopt this paradigm, such as most of the TON ecological projects and mini games.

Difficulty: This method of customer acquisition mainly faces two problems, one is that the conversion cost of seed users obtained by this is extremely high, we know that most of the users attracted by this program are cryptocurrency speculators, so this part of the user’s attention to the project itself is not so strong, more for the reward of potential financial attributes to participate, and there are currently a large number of professional airdrop hunters, or hair studios, which brings great difficulties to the later transformation of it into real product users. And there is a risk that the project will misjudge the PMF, which can lead to over-investment in the wrong direction. Second, with the proliferation of these models, the marginal benefits of using Airdrop to acquire customers have shrunk, which means that the cost of building enough traction among crypto speculators will gradually increase.

( 2 ) User loyalty program based on X to Earn

Opportunity point: Retention and promotion is another consumer application concern, how to ensure that users continue to use your product, it takes a lot of energy and cost. Similar to marketing, using the financial attributes of tokens to reduce the cost of retention and promotion is also known as the choice of most such projects. A more representative model is X to Earn, which builds a user loyalty program based on token-based rewards for pre-set key user behaviors.

Difficulty: Relying on the user’s motivation to earn revenue will shift the user’s focus on the product from the product function itself to the rate of return, so if the potential rate of return declines, the user’s attention will also be quickly lost, which is a great harm to consumer applications, especially some products that rely on a large number of UGC. If the rate of return is based on the price of the token issued by itself, it will put pressure on the project party to manage the market value, especially in the bear market stage, and have to bear high maintenance costs.

( 3 ) Use the financial attributes of Token to directly monetize

Opportunity: For traditional consumer applications, there are two most common business models, one is free to use, using the value of platform traffic after mass adoption, and the other is paid to use, if you want to use some Pro services of the product type, you need to pay a certain fee. However, the former has a longer cycle and the latter is more difficult. Therefore, Token brings a new business model, that is, using the financial attributes of Token to directly realize, that is, the project directly sells coins for cash.

Difficulty: It can be clearly said that this is an unsustainable business model, because when the project development has passed the early stage of high growth, due to the lack of incremental capital inflow, this zero-sum game model will inevitably let the interests of the project party stand on the opposite side of the interests of users, accelerate the loss of users, if not take the initiative to cash out, due to the lack of robust cash flow revenue, the project party can only rely on financing to obtain funds to maintain the team or business expansion, and this will fall into the dilemma of relying heavily on the market environment.

3. Fully serve Web3 native users and solve the unique pain points of this part of users The last paradigm refers to consumer applications that fully serve Web3 native users. According to the direction of innovation, it can be roughly divided into two categories:

( 1 ) Construct new narratives that monetize certain untapped elements of value for Web3-native users to create new asset classes

Opportunity: By providing Web3 native users with new speculative targets (such as the SocialFi track), the advantage is that they have the right to price a certain asset at the initial stage of the project, so as to obtain monopoly profits, which can only be achieved after fierce market competition and strong competitive barriers in traditional industries.

Difficulty: Frankly speaking, this paradigm relies more on team resources, that is, whether it can get the recognition and support of people or institutions that have strong appeal among Web3 native users, or have the “pricing power” of crypto assets. This brings two difficulties: one is that as the market develops, the pricing power of crypto assets is dynamically transferred between different groups, such as from the initial Crypto OG, to crypto VCs, to CEXs, to crypto KOLs, and finally to traditional politicians, entrepreneurs, or celebrities. In this process, the ability to identify trends and establish cooperation with upstarts at each right transition has a great demand for team resources and market sensitivity. Second, in order to establish a partnership with the “pricer”, it is usually very costly and costly, because in this market, you are not competing for a larger market share with other competitors in a certain application track, but competing with all other crypto asset creators for the attention and preference of the “pricer”, and this is a very competitive game.

( 2 ) Serve the unmet needs of Web3 native users in the process of participating in the marketplace by providing new instrumental products. Or provide better and more convenient products for this part of users from the perspective of user experience

Opportunity point: The author believes that this is the most potential paradigm in the future, with the gradual popularization of cryptocurrency, the overall base of this part of the user group will gradually expand, which brings the possibility of user segmentation. And because they focus on the real needs of a certain user group, such products are often easier to achieve PMF, so as to establish a more robust business model, such as some transaction-related data analysis platforms, Trading Bots, information platforms, etc.

Difficulty: Due to the return to real user needs, although the development path of the product is more robust, the construction period is longer than that of other paradigm projects, and because such projects are not narrative-driven, but demand-driven, the PMF of the product is relatively easy to verify, and it is usually impossible to obtain large amounts of financing in the early stage of the project, so it is difficult to be patient and stick to the original intention in the complex myth of wealth brought about by “coin” or high-valuation financing.

Of course, these three paradigms are not completely independent, and you can see their shadows in many projects at the same time, but for the sake of analysis, we do this classification. Therefore, for those who want to start a business in the Web3 Consumer Application track, it is the most important thing to comprehensively evaluate their own advantages and demands, and choose a paradigm that suits them best.