Will the development towards mobile be a breakthrough opportunity for Web3?

Original Title: 《On building mobile first》

Written by: Joel John

Compiled by: 深潮 TechFlow

Bear markets are a good time to consider getting into cryptocurrency. Working in a 24/7 industry comes with social, mental, and physical costs.

Due to the way tokens work, the definition of a "successful" founder in the blockchain ecosystem is slightly different from that in the traditional world.

You may often see founders without products, users, or business models raising incredible amounts of money for themselves and their investors—entirely based on hype.

In the crypto industry, you don't need traction, sticky users, or revenue to run a "billion-dollar protocol"; many so-called significant "successes" have made no meaningful change in the lives of people outside the industry.

Whenever regulators attempt to create laws around technology, it indicates that the field has become a focal point, especially in emerging markets.

I can say that our industry is a case of Peter Pan syndrome: a person has an adult body but a child's mind. It describes a dilemma: even though the technology of the games we play often seems immature to founders, investors, and users, as long as there is capital to be made through these games, there will be players, and the games will continue.

However, reaching the level of Coinbase, FTX, and Binance requires years of effort from different capital players.

In the past five years, consumer-facing mobile applications have been the biggest driver of growth in the industry, which explains why Wyre and Moonpay are valued at $1.5 billion and $3.4 billion, respectively. They are key infrastructures through which applications penetrate retail users via small transactions (primarily through mobile devices).

If cryptocurrency wants to emerge from Peter Pan syndrome, it must reach ordinary people who do not want to care about private keys and protocols; the means to unlock the next trillions in value is by caring about what people outside of Twitter want.

This article is a preliminary exploration of motivations, macro trends, and opportunities, hoping that founders looking to build in this industry can leverage these opportunities. In this context, let's dive deeper.

Why PC?

To understand why most Web3 applications today are PC-focused, we can recall that most users remaining in cryptocurrency likely entered between 2017 and 2019. During that time, around $25 billion flowed into over 8,000 ICOs. It was a golden age where anyone could trade and make quick profits. But like most trades, your advantage depended on how quickly you could get information.

During that era, the user experience for ordinary people entering the space revolved around ICOs, hoping they would list at a sufficiently large multiple. Once a token was listed, you would look for the next ICO to deploy funds. This was very different from before 2017, when you could only trade (send/receive) or trade digital assets. It was then that wallets like Myetherwallet and Metamask began to carve out their share of the industry.

As the DeFi ecosystem eventually evolved into the behemoth it is today, desktop-based applications became the standard for users to interact with the industry.

In my view, there are two reasons for this:

• First, deploying large institutional funds into DeFi protocols to accumulate TVL requires secure infrastructure. This is often only achievable through browser-based wallets like Metamask, where interacting with smart contracts and adding new tokens is easier through a desktop interface.

• Second, the flywheel incentivizes developers to build for a few users who hold most of the capital. Products can afford to overlook the end-user experience because their primary focus is to absorb as much TVL as possible. Unfortunately, this also means that most users entering the ecosystem have been unable to use these new DeFi infrastructures for most of 2020.

Why shift to mobile facilities?

I see mobile devices as the medium for spreading Web3 applications because I believe these devices capture human attention the best. Even when we use devices like televisions—designed to consume attention—smartphones have the advantage. They serve as interfaces for education, dating, entertainment, grocery shopping, bill payments, and finding new ways to exist. By 2013, the time spent online via mobile devices had surpassed that spent on laptops or desktops.

Building on mobile also allows those who previously had little or no access to ownership elements to experience them. Mobile-first applications accelerate digitization, compress costs, and make services more affordable for more people.

In the past, obtaining complex financial products and achieving ownership was a high-cost, low-margin endeavor. This explains why providing banking services to the unbanked has historically been a huge challenge. Employee work hours expand linearly, while the customer base grows exponentially. Without digitization, serving a growing user base requires a significant amount of time, leading banks to filter customers.

Traditionally, for a lender, issuing loans to ten thousand users meant proportionately hiring credit assessors. When digital banks emerged, AML/KYC and distribution functions grew exponentially, reducing the time spent in this area—allowing digital platforms to scale with smaller teams. As the user base expands, the cost of servicing each new user decreases.

Take Compound and Aave as examples; the costs incurred are lower because smart contracts run on Ethereum. DAOs do not run the infrastructure itself (the underlying blockchain). This does not include the fact that their credit assessment or AML/KYC costs are zero.

Digital banks have disrupted the unit economics of inclusivity. Suddenly, banks no longer need to establish offices in remote areas of the world. Instead, they can reach their users through mobile device connectivity, conduct necessary KYC, and provide banking services. This is most evident in India. A state-owned payment network called UPI expanded from $4 billion in monthly transactions to over $120 billion in just four years, with Indians conducting 72 billion digital transactions annually.

DeFi promises to give everyone access to investment banking-level products. This is a variation of the promise made by ICOs, where the idea was that now everyone could invest in early-stage projects. Overall—this is true, but it excludes the fact that people often want simplicity, to set it and forget it, rather than things that require ongoing monitoring. I have an example to illustrate this, which is the case of JarHQ from India. The UPI transaction volume of this app has consistently ranked in the top 20 in the region; why do users make so many transactions? To buy gold, priced as low as $0.05.

Historically, buying gold in India has been a luxury, where people spend a lot of money but receive very little in return. Jar disrupted its unit economics by focusing on digital gold custody, reducing the amount of money needed to purchase gold, leading to a surge of users at a scale that most traditional, store-first peers could not achieve.

How does all this translate to DeFi? From my understanding, most founders have shifted to building products for institutions. Why? Because you can disregard user experience, focus on a few clients, and claim to have billions in TVL. Since your customer base is almost entirely experienced financial managers, you also won’t spend much effort on improving user education.

This makes some business sense, as the vast majority of volume comes from desktop users. On the other hand, exchanges see nearly 90% of their user base accessing through mobile applications. At the core of the construction on desktop versus mobile is the struggle between this capital magnitude and the share of human thought.

Mapping User Motivations

I am eager to learn more about user motivations in emerging markets and the behavior patterns of wallet users. Ravindra from Frontier Wallet kindly shared insights he has observed on his product. Frontier Wallet is one of the earliest smart contract-based wallets on the market, allowing users to easily track their portfolios across multiple blockchains without interacting with each chain's browser.

Ravindra observed that Frontier users save an average of $1,000 to $10,000, and these users are more knowledgeable about cryptocurrency than the average user storing assets on exchanges. The average wallet balance for users on Indian exchanges is around $150 to $200. These users interact directly with multiple smart contracts and are interested in generating dollar-denominated returns. In inflationary regions like Turkey (one of Frontier's larger markets), there is a strong interest in being able to store digital dollars and generate returns.

He has seen different subsets of users seeking to use Web3 as a consumption track, typically interacting with music or gaming-related NFTs on-chain. In his view, the next wave of digital asset users will not come to speculate on-chain but to be entertained.

In my view, the user growth arc in digital assets will follow a pattern very similar to what we have witnessed in digital consumption in India. The data above reveals how many years Indians have spent consuming different application categories in a given year. Social media and entertainment are passive applications that found the most users.

Consumption patterns almost loosely follow Maslow's hierarchy of needs. In this case, people start by satisfying their basic needs—a place to spend their attention. Then, moving up the arc, financial services for trading and saving, with a small portion moving towards education or skill enhancement. I attempted to create a Maslow's hierarchy of needs based on the data above.

In Web3—we have inverted this relationship. Most of us spend our time on Telegram, Discord, and Twitter. The market is a source of entertainment, but it comes at a huge economic cost.

Today's Web3 applications focus on financial applications or speculative layers; if the industry is to relate to the vast majority of people on the internet, it needs to look at what most people online today are doing. For example, applications that do not require purchases but can entertain or connect people.

This is not to say we are not working towards this direction. The significant rise of Axie Infinity in 2021 was partly due to the team spending two years building the largest Web3, mobile-first user base. Recently—Sweatcoin, a Web2 application with ±3-4 million DAU, has launched a token economy within its app.

Applications like Mirror, Coinvise, and OpenSea allow creators to build stronger commercial connections with their users. But in almost all these cases, we assume that users will engage in transactions, and our focus should be on achieving passive participation. A user can benefit without needing to actively trade or post; there is a category of applications that may lead this shift.

This category is gaming. They have rich digital assets, the largest user bases, appeal to different demographics, and have the lowest purchase requirements. Unlike most cryptocurrency applications today, games provide users with community and entertainment experiences.

Because there is an overlap in user behavior between gamers and cryptocurrency participants, educating users about wallets, trading, or interacting with NFTs through gaming becomes very easy.

What does the future hold?

Today's Web3 is a community composed of tech bros in a speculative frenzy, explaining how groundbreaking it is to track little pictures and then discover wallet addresses.

However, if it is to penetrate the structure of society, we need to think clearly about how people interact with technology. We need to build tools that change human perceptions of why they should care about this technology.

Some companies are already working towards this vision. For example, Bluejay is developing a stablecoin for emerging markets, and Goldfinch has issued over $100 million in loans to small and medium-sized enterprises globally.

According to data from Crypto-art, the hype around NFTs is justified, as it has helped nearly 900 artists earn over $100,000 in income over the past year, with more than 10,000 artists earning over $2,000.

Thus, in certain parts of the market, we are making meaningful changes—but through mobile devices, it can scale to everyone.

Our focus should be on achieving this transition from a chaotic, confusing Web3 where users flounder in different directions to a guided, curated, and useful Web3. All of this is to preserve the characteristics that cryptocurrency originally possessed: decentralization and inclusivity.