Exploring the future of crypto-native consumer products from nine major application categories

Author: Mercedes Bent, Lightspeed

Compiled by: Paimon

Every major technological shift ultimately gives rise to a wave of new consumer tech companies. The internet brought us media applications like AOL and Yahoo, online marketplaces like Amazon and eBay, and entertainment sites like Netflix and Pandora. The shift of the internet's focus to mobile has further propelled the rise of companies like Twitter, Uber, Facebook, and Snap.

We are currently at a moment of a third significant structural transformation, where the foundation of all applications and services is gradually shifting towards blockchain (Web3). The potential of blockchain is immense, as it addresses many of the issues surrounding identity, transparency, and trust that currently plague the internet.

Today, applications in art, music, and sports are all driving the development of cryptocurrency consumer companies. Although cryptocurrency has, in some sense, become a part of "pop culture," there have been few well-known brands that have successfully penetrated the mass market beyond Coinbase, OpenSea, Yuga Labs/BAYC, and Metamask.

Why is that?

One reason is that the magic of blockchain today is still too early to attract a large "mainstream" audience. In the crypto world, users are mostly drawn by incentives and ownership. Successful consumer products often leverage a multitude of core drivers that facilitate human behavior—needs for existence and meaning, expression and creation, connection and influence, ownership and belonging, security and assurance, impact and interaction, stimulation and dopamine, achievement and construction.

This is why it is uniquely challenging to create consumer products—creators have only a few seconds to capture users' attention, and after successfully attracting users, they must face an even tougher challenge: driving product reuse and sustained user engagement.

Building a lasting cryptocurrency brand that meets these user needs is both a challenge and an opportunity. Crypto-native companies need to gauge the general consumer's acceptance of decentralization as one of their metrics, seeking an optimal balance between "experience" and "decentralization." Some companies are still adopting certain principles of consumer product development (providing users with trust, security, seamless experiences, surprise, and delight)—their outstanding performance in community building has fostered a strong sense of belonging among users.

Many potential players are vying for these opportunities. Cryptocurrency-native products have already made a splash in nine areas, such as digital wallets and NFT markets, and will likely become mainstream in several emerging fields (future articles will delve into some of these areas in more detail).

We are currently in a "correction period" for cryptocurrency, and the crises triggered during this correction will create new opportunities for new consumer categories. It is conceivable that a year from now, several of the following categories will undergo significant changes.

Here are several areas where we might see the emergence of cryptocurrency-native consumer giants, roughly categorized from mature to nascent.

#1 Business / NFT Market

Whether it's video, art, gaming, or music, each field has spawned its own NFTs (non-fungible tokens), and each type of NFT has its own market. The NFT market is the town square of cryptocurrency, its commercial hub, and its success stems from its perception of popular elements.

• Before NFTs can become trusted mass-market products, they need to overcome the public's distrust of cryptocurrency and improve the purchasing experience.
• Designers have the potential to create a world-class platform with trust, security, and assurance, opening up a broader market for NFT benefits. Utility NFTs can attract the mass market—more embedded and platform business opportunities may also emerge off-chain.
• Although OpenSea has dominated this field, it has recently been overtaken by Magic Eden in terms of users and volume. Other notable companies working in this area include LooksRare, Hawku, Fractal, Zora, and Autograph.

#2 CeFi / DeFi, and Wallet Development Prospects

Just look at the sky-high valuations of Coinbase, Blockchain.com, Uniswap, Metamask, as well as Zerion and Zapper, and you can't help but acknowledge that consumer fintech products are arguably one of the biggest successes to date. In both centralized and decentralized finance, wallets are undoubtedly the biggest winners.

Wallets are to cryptocurrency what email was to Web1.0. Wallets have become the means to connect individuals logging in as single nodes, serving as the authentication method for the native crypto world. However, they have yet to reach the level of mass consumer products.

• Wallet usability and user experience design are lacking—creating a wallet requires remembering a long, convoluted seed phrase, with the risk of being locked out when transferring funds (YouTube it, good luck).
• Even after completing these steps, users still have to pay a slew of fees when making purchases. Therefore, the entire system is not yet fully prepared for the mass market.
• The good news is that there is a huge market opportunity to improve this process. Major companies like Blockchain, Metamask, WalletConnect, Phantom, and Rainbow will undoubtedly take proactive measures, while wallets-as-a-service (WaaS) companies like Triangle and Slaz will redefine the market.

#3 Gaming / Metaverse

As early as October 2021, it was recognized that this metaverse was different. While the term "metaverse" can be somewhat confusing, one cannot deny the impact of cryptocurrency metaverses like Sandbox and Decentraland, as well as players who view larger Web2 metaverses like Roblox, Minecraft, VRchat, and RecRoom as their primary social circles.

• Young people are eager to spend time in open-world social games, which is precisely why they are experiencing the highest growth rates.
• Cryptocurrency has connected these platforms to real-world currency for the first time, greatly enhancing the potential and utility of gaming.
• Crypto-native games have suffered from poor gaming experiences due to issues like "play-to-earn" and other related problems.
• It will be exciting to see whether blockchain gaming startups like Faraway, Star Atlas, Defi Kingdoms, Harvest, and many others can usher in a new era of cryptocurrency gaming.

#4 Digital IP/PFPs: The Disneyland of Cryptocurrency

Perhaps the most obvious success of crypto products so far comes from NFT profile pictures like AYC, Cryptopunks, World of Women, and Azuki. The top three NFT series alone accounted for 40% of OpenSea's trading volume in 2021. These projects have created communities and shared identities around art, bringing characters to life like Disney and Pixar.

• Compared to traditional media IP development, digital-first IP brands have many advantages—they can quickly iterate and tokenize through social media as community engagement strengthens, debuting before the story even begins.
• Take Crypto Coven and Invisible Universe as examples; compelling storylines are key to enhancing engagement—in the Web3 era, projects are not just consumer-driven means but rather ongoing interactions and collaborations among community participants, which is the secret to making stories and characters more vibrant.
• The best digital IP companies are achieving profitability in a sustainable manner, collaborating with gaming and other recurring royalty pools, and not relying on one-off custom licensing deals. Notable companies in this space include Recur, Yuga Labs (BAYC), and Invisible Universe.

#5 Creators / Entertainment Media / Collectibles

Entertainment and sports have always been the biggest bridge for cryptocurrency to enter the mass market—Staples Center is now Crypto.com Arena; music and television are being restructured; monetization experiences are further enhanced, and issuers' tokens are continuously generating revenue. Creator coins and articles related to future income emerged in October 2021; while this category is still in its early developmental stage, it highlights the game-changing impact of cryptocurrency on creativity.

• Creator coins turn fan communities into financial backers, transforming someone's personal brand into a form of currency.
• Tokens, NFTs, and cryptocurrency assets work exceptionally well for creators with unstable incomes—they need to continuously produce new content or increase their visibility to maintain revenue. Fans of creators possess unique works from that creator and convert their love for the work into financial support for the creator.
• Creator tool companies provide creators with means to publish articles and create music on platforms by connecting with crypto-native platforms like Mirror and Mayk.
• Sports have always been closely tied to collectibles, and entertainment collectible companies hope to further optimize digital collectibles in a trusted, verifiable, and scalable manner on top of existing Web2 behaviors.
• Participants in this space include HumanIPO, Mad Realities, Dapper/NBA TopShot, Audius, Rally, Fan Controlled Football, Royal, and Autograph.

#6 Search / Discovery and Interest-Driven DAO Aggregation

The biggest innovation of Web1 was solving search and global information access, while Web3 adds a layer of identity. The added dimension allows blockchain search engines to easily access ownership records, bringing more fresh content to people. However, so far, those merely wandering around Twitter Square find it challenging to discover interesting things in the cryptocurrency world, such as new NFT collections, DAOs, and intriguing individuals.

The emergence and surge of DAOs may resolve previous dilemmas. DAOs (Decentralized Autonomous Organizations) enable communities to form around interests and act collectively without hierarchies or bureaucracies. Moreover, because they rely on smart contracts (code), transparency and credibility are greatly enhanced. For the following reasons, DAOs will become one of the dominant consumer applications.

• DAOs can be created for almost any purpose—from supporting Ukraine (UkraineDAO) to research on aging and longevity (VitaDAO), from social clubs (Friends With Benefits) to owning sports leagues (Fan Controlled Football).
• Whoever can aggregate all these DAOs and enable discovery across social groups will be able to replace Facebook groups with an embedded financial system, rewarding people for their contributions to each community.
• Those capable of achieving this aggregation may be DAO tool companies that already support DAO networks, such as CollabLand, Superdao, Syndicate, or analytics companies like DeepDAO. DAO tool companies are interesting candidates because they already support DAO networks.

#7 Connectivity / Crypto-Native Messaging

Every new technological shift creates a new messaging giant. In Web1, it was email companies like AOL, Yahoo, Hotmail, and Gmail. In Web2, there was an explosion of SMS, WhatsApp, and other mobile messaging companies. Why?

• Messaging is one of the highest forms of social activity and embodies the value of "connection" that the internet enables.
• For reasons like wanting to purchase similar assets or simply wanting to meet like-minded individuals, sending messages to wallet owners based solely on the assets in their wallets is currently impossible.
• Messaging directly to a wallet address and paying for access can eliminate the hassle of middlemen profiting from the transaction fees they charge.
• Companies like XMTP, Dialect, Waku, Web3mq, and Satellite are developing core infrastructure to achieve this goal, while companies like Blockscan, Metalink, and Mailchain are attempting to implement on-chain messaging at the application layer.

#8 Real-World Utility / Experiences

The success of NFTs in the art realm often encounters the question: "What can I do with them? What are they really good for?" The answers to these questions often involve X to earn, NFT ticketing and experiences, and task-based rewards that can link cryptocurrency purchases with IRL activities and real-world tasks with cryptocurrency rewards. X to Earn began with play to earn and has gradually evolved into move to earn, learning to earn, sleep, eat, meditate, and more.

• The issue with X to earn stems from the sustainability of the projects themselves. These projects are often filled with speculators seeking quick returns, causing tokens to skyrocket and then lose value over time. Until this issue is resolved, the utility of X-to-earn remains unknown.
• NFT ticketing + experiences will help drive utility by providing proof of access to special events and exclusive loyalty programs. Some are one-time events, while others provide users with ongoing rewards, benefits, and social spaces.
• If ticketing + experiences represent "paying cryptocurrency for value," another interesting aspect is "working to earn cryptocurrency." These platforms and applications offer consumers small tasks in exchange for cryptocurrency-based rewards (NFTs, stablecoins, native tokens of projects).
• This highly promising space is not without competitors—some of the more well-known include Axie Infinity, Stepn, Sweatcoin, and Layer3. Fresh blood is continually being injected into this space, including Percs, Afterparty, TokenProof, Mintgate, Rabbithole, Coordinape, and Bitsports.

#9 Digital Identity Profiles / Social Networks

Wallet addresses also serve as another medium for storing personal identity information and on-chain activities. However, so far, there has yet to be a method to showcase all of a person's on-chain activities and regard them as an on-chain digital identity. Some startups are working to solve this problem.

• Proof of Attendance Protocol (POAP) allows users to generate NFT tokens that display records of participation in meetings, concerts, or sporting events, as well as proof of membership in a DAO. Claiming these tokens may present some barriers in the usage process, but this could be a feature rather than a bug.
• Entre serves as LinkedIn for the blockchain space, storing professional profiles and relationship networks, while ENS (Ethereum Name Service) provides an easy-to-remember domain name equivalent for long and complex wallet addresses.
• Other projects that can aggregate and share on-chain credentials include crypto-financial projects like Lemon Cash or Webull, NFT market projects like Socket, Magic Eden, or Hawku, and social network projects like Bitclout, Farcaster, or Showtime.
• Players in this space will need to strike a reasonable balance between sharing identity and maintaining privacy.

#10 Extensive Infrastructure Layer

However, identity protocols, social graphs, wallet security, DAO tools, and more work is underway, all of which are building on-chain infrastructure to serve the above projects.

An Evolving Category

Clearly, cryptocurrency-native startups are still in their early developmental stages, so it is too early to accurately judge where the next explosive cryptocurrency product will emerge.

The categories discussed in points 6 to 9 are still in the primitive stages of development, and there is indeed a significant overlap among them— as NFTs are seen as access tools for everyone, business/market and utility may merge reward types, creators and utilities have already combined with exclusive fan experiences and other loyalty products; on-chain profiles become proof of real-world activities, leading to the eventual merging of digital identity and utility; the merging of interest groups, entertainment, gaming, and digital IP, with cryptocurrency-native IP extending into the real world, will also bring about the merging of digital identity and discovery functions…

As for questions like "Who will tomorrow's consumers be?", "Who will lead cryptocurrency into the next bull market?", "Which product areas will experience rapid growth first?", "How will cryptocurrency elements enhance consumer experiences?", "Which areas are truly transcending Web2 and opening new frontiers?"—these concerns have not been answered in the overview above.

This field needs more founders with experience in creating products that customers love, as well as consumer companies that encourage positive consumption habits, understand behavioral psychology, and design exceptional user experiences. In summary, we will ultimately succeed.