How long will it take for TON to achieve mass adoption compared to WeChat?

Authors: Evan, Joy, Aaron J, Waterdrip Capital

1. Now is the Time to Prioritize Mass Adoption in Explicit Construction

Mass Adoption has always been the core challenge of Web3. However, the market often tends to focus on short-term wealth effects, neglecting the sustainability of projects and the key factors for achieving Mass Adoption. Since the launch of BTC in 2009, among various sectors, only centralized exchanges like Binance have surpassed 200 million users, becoming the typical product to achieve Mass Adoption in the Web3 space.

With the approval of the BTC ETF, the market has entered a bull market unique to BTC OGs and believers. In contrast, due to insufficient liquidity, new coins have performed poorly, and altcoins have not shown the flourishing phenomenon of the last bull market, with most Web3 users not enjoying the prosperity of the bull market. In the last bull market, crypto users grew rapidly from less than 50 million in 2019 to 420 million in 2022, an increase of about 10 times. However, from early 2024 to now, the global crypto user base has only grown by 30 million, with growth rates far below those of the last bull market.

Global Web3 User Growth Chart, Data Source: Triple-A

From a first-principles perspective, the fundamental reason for this gap is that now is the critical moment to place Mass Adoption in explicit construction.

2. Obstacles to Mass Adoption in Web3

A16Z emphasizes in its report "big-ideas-in-tech-2024" that simplifying user experience is the foundation for achieving Mass Adoption in Web3.

Binance points out in its report "Road to One Billion On-chain Users" that two core conditions are needed to achieve Mass Adoption: first, there must be on-chain applications that users want to use; second, these applications must be easy to understand and access. Many products that have achieved product-market fit (PMF) and successfully navigated cycles have confirmed these two core conditions. At the same time, the crypto industry also needs to build the necessary infrastructure, tools, and public awareness to make the concept of "digital ownership" easily understandable and accessible to global society.

Mark Suster, managing partner at the veteran venture capital firm Upfront Ventures in Los Angeles, mentioned that to build Mass Adoption products, in addition to PMF, products must be able to generate sustainable profits and have a sufficiently large target market.

Mass Adoption is not just about acquiring users; it must also capture the liquidity in users' hands.

IOBC Capital believes that addressing compliance channels for traditional institutions entering Web3 is also key to achieving Mass Adoption. Compliance issues are seen as soft infrastructure, and with the approval of BTC/ETH ETFs, the establishment of BlackRock's RWA fund, and candidates in the U.S. presidential election including Web3 construction in their campaign promises, the development of related policies and compliance channels is showing a steady and irreversible trend.

In summary, for Web3 to achieve Mass Adoption, the following conditions must be met:

1. Truly meet a real demand (i.e., PMF);
2. The target market must have at least billions of people or a scale of hundreds of billions of dollars;
3. Low user adoption barriers and high product usability;
4. Mature upstream and downstream supply and infrastructure supporting the core value and experience of the product;
5. Ability to acquire users on a large scale and accurately;
6. A long-term sustainable business model.

We see that conditions 1-4 have seen projects in the Web3 space continuously invest and improve. Telegram and TON bring benefits to condition 5. However, there has been little progress on condition 6. The core logic here is:

• PMF ≠ Business Model; a good product does not necessarily mean it can be profitable.
• Without sustainable profitability, it is difficult to acquire users on a large scale and accurately in the long term. After all, airdrops can only bring low-cost bursts for projects in the early stages; if they cannot sustain profitability, who will continue to pay for the tokens given away in airdrops?

Looking back at the last cycle, DeFi, GameFi, NFTs, and the metaverse all provided ample momentum for Mass Adoption. They all matched several of the above requirements: Axie Infinity and YGG addressed the income issues of a large number of unemployed people in the Philippines during the pandemic, while STEPN matched users' fitness needs and lowered the usage threshold through its built-in wallet. However, despite many projects achieving significant results, the lack of sustainable business models and the inability of non-financial return products to engage users for payment have hindered their ability to continue the mission of Mass Adoption. This provides us with valuable experiences and lessons.

3. Advantages and Challenges of the TON Ecosystem in Achieving Mass Adoption

3.1 Advantages

A social network based on 1 billion users—capable of acquiring users on a large scale

As of now, Telegram has 950 million monthly active users, and its social network provides ample space for social viral marketing for projects. Social viral marketing is one of the most efficient ways to acquire users on a large scale, and efficiently acquiring users is a crucial prerequisite for achieving Mass Adoption.

Comparison of marketing methods and channel effectiveness in the Web2 era, Data Source: Miniton

Leveraging this advantage of the TON ecosystem, it has successfully nurtured multiple ecosystem projects with tens of millions of users, 60% of which are active gaming projects. Among them, Notcoin was the first to achieve this goal, attracting over 35 million crypto users since its launch. Its token $NOT took less than a month from launch to listing on exchanges and achieved a 400% increase within two weeks, becoming one of the few Alt Coins performing well in this bull market.

Attracting developers further through mini-program frameworks—maximizing coverage of end-user needs (PMF)

For ecosystems and infrastructure, achieving PMF is a probabilistic issue; ecosystems can solve PMF issues by increasing the number of products—eventually, one product will meet user needs. Clearly, the combination of Telegram mini-programs and the TON ecosystem has attracted a large number of developers to create numerous mini-programs to infinitely approach meeting various user needs.

The reasons for developers to settle in Telegram and TON are very clear: there are a large number of users, and the conversion rate from exposure to opening applications is very high: mini-programs provide the shortest access path, requiring no URL input or downloads, and can be used immediately—this not only lowers the user adoption barrier but also enhances the conversion rate of acquiring users.

Banana Gun is a Telegram bot that launched on Binance on July 18, 2024. It not only facilitates automated and manual trading on the Ethereum network but also supports users in manually buying and selling tokens on the Solana network. Undoubtedly, the success of Banana Gun benefits from the support of bots and mini-programs provided by Telegram, as well as the advantage of reaching users on Telegram.

Highly integrated MPC wallet—low barriers, high usability

TON currently provides users with two wallet tools: Telegram Wallet and TON Space. Except for users in the U.S., other users can activate Telegram Wallet by adding the wallet bot and start TON Space in the Telegram Wallet mini-program. When transacting within the Telegram app, from account registration to transfers to every payment, the Telegram wallet provides the most convenient user experience, akin to WeChat Pay.

With the low-threshold wallet provided by the TON ecosystem, Catizen in the TON ecosystem has achieved a 10% on-chain user conversion rate, with 25 million players, about 1.5 million on-chain gamers, and over 500,000 paying users globally, generating over $16 million in game revenue.

On July 23, the Binance incubator announced an investment in Catizen's issuing platform, Pluto Studio. Binance co-founder and head of Binance Labs He Yi stated, "Binance Labs has always been keen to support projects like Pluto Studio, which have the potential to attract billions of users to Web3. We look forward to supporting more visionary builders who aim to create products designed for Mass Adoption."

3.2 Challenges

Single reliance on Telegram

The greatest advantage of the TON ecosystem lies in its exclusive support from Telegram: it is the only Web3 infrastructure integrated with and promoted within Telegram. This is both an advantage and the biggest risk; any changes in Telegram could have systemic impacts on TON. For example, on the day Telegram founder Pavel Durov was arrested, the TVL of the TON ecosystem dropped by over 60% in a single day, highlighting the systemic risks of relying solely on a centralized organization.

Insufficient development in the DeFi sector

Although users are the foundation of funds, not all products and teams possess the ability to monetize traffic. The current widespread phenomenon of insufficient payment capability among Telegram users is believed to be due to product forms and team issues rather than ecosystem problems. For example, Catizen and a considerable number of Trading Bots/mini-programs have effectively captured the liquidity behind Telegram traffic. Meanwhile, in high-revenue Web2 WeChat mini-games, about 60% of traffic comes from decentralized product virality. Nevertheless, the TVL scale of the TON ecosystem remains unreasonable, primarily due to the lack of DeFi projects. Currently, STON.fi and DeDust account for 80% of the total TVL in the TON ecosystem.

Incomplete commercialization services

Developers' focus on ecosystems usually includes four points:

1. Platform scale
2. Completeness of infrastructure
3. Efficiency in reaching users
4. Support for traffic monetization

Among these four aspects, points 3 and 4 pertain to commercialization services/infrastructure. In these two areas, TON has only achieved 50% in each.

In terms of reaching users, TON has achieved large-scale efficient outreach: the current customer acquisition model in the TON ecosystem, excluding sharing and viral models, mainly relies on non-performance marketing CPM methods of Telegram Ads and traffic diversion through mini-programs. However, due to data privacy protection reasons, precise targeting and performance marketing cannot be achieved unless Telegram violates its product principles by collecting extensive user privacy data.

In terms of traffic monetization, TON provides excellent payment tools, such as the Web3 payment tools Telegram Wallet and TON Space, as well as Web2 payment tools like Telegram Star. However, most products that best match user needs do not apply to paid monetization methods, such as free tools and light games. These free products that do not apply to paid monetization often struggle to establish a stable and reliable business model, which is an indispensable prerequisite for products to achieve Mass Adoption. The shortcomings of the TON ecosystem in commercialization services/infrastructure seem to become the last unclear obstacle to building Mass Adoption products.

On the issue of sustainable business models, there are also participants. MiniTon is a commercialization service provider funded by the TON Foundation, offering TaaS (Tournaments as a Service) profit solutions for casual and competitive game developers, helping them escape the predicament of relying solely on advertising monetization, and reconstructing the social operation model of games based on the Friend Tech protocol to establish a sustainable and stable Web3 business model.

The profit model of competitive matches (EF & RK) is listed alongside advertising-based (IAA) and in-game purchase (IAP) profit models as one of the three major game monetization models. This model has been widely applied in PvP games like card games, which have an annual market size exceeding $30 billion in the Web2 market and have consistently been the best-selling category in social applications, hailed as a driving force for Mass Adoption in the Web2 space. MiniTon utilizes crypto technology to seamlessly integrate the profit model of competitive matches with Telegram. At the same time, it optimizes the operational model of PvP games with a market scale of over $30 billion using crypto social protocols.

MiniTon received significant investment and incubation from Waterdrip Capital in its early development. Currently, MiniTon has provided players with a social competitive platform, allowing players to experience e-sports even in single-player casual games through game battle contracts and establish new social connections. Developers can integrate MiniTon's monetization solutions with just 1.5 days of development time by accessing the SDK.

As of now, MiniTon has completed Alpha I closed testing, with the number of users participating in the internal test reaching 30,000 and achieving a 1% conversion rate for paid users. It is expected to launch the Alpha II test version by the end of September and expand the testing scale to hundreds of thousands of users.

It is worth noting that MiniTon's game contracts are a multi-chain protocol, not entirely reliant on a single ecosystem, thus possessing strong resistance to systemic risks.

4. What Can the TON Ecosystem Learn from WeChat's Successes and Failures

4.1 Is WeChat Worth Referencing?

Like Telegram, WeChat is a social product based on communication and social relationships. However, there are significant differences between Telegram users and WeChat users. The following is a summary of user data for Telegram over the past week based on third-party monitoring:

Overview of Telegram User Data, Data Source: Waterdrip Capital

4.2 Different User Profiles for Telegram and WeChat Users:

Excluding geographical distribution differences, the most notable difference between Telegram and WeChat lies in user usage habits:

• WeChat is a typical acquaintance social app, a strong social relationship application. Telegram, on the other hand, is a more generalized social relationship application, similar to QQ.
• The average daily usage time for WeChat is 1.5 hours, while for Telegram, it is 0.5 hours.

As of the end of June 2024, the monthly active user scale of WeChat mini-programs reached an astonishing 930 million, with a penetration rate exceeding 90%. The advantages of user acquisition and WeChat's mature commercialization service infrastructure are the core reasons for developers' success in the WeChat mini-program ecosystem:

1. Ultra-lightweight user access path: no downloads or URL input, instant use.
2. Effective user acquisition based on social relationships: about 60% of traffic comes from user sharing.
3. New incremental market: according to data, the monthly active users of WeChat mini-games reached 755 million in February 2024, even surpassing the 650 million users of mobile game apps.
4. Efficient commercialization service system: based on WeChat Ads and WeChat Pay, mini-game revenue reached $3 billion in 2023.

Telegram mini-programs already possess the first three advantages mentioned above, but the shortcomings of Telegram compared to WeChat are particularly evident:

1. Weak user payment capability: the vast majority of users come from low-paying regions.
2. Inability to target precisely: due to privacy protection principles, it cannot provide precise marketing services like WeChat Ads, making it difficult to acquire high-net-worth or target users.
3. Low payment penetration: the penetration rate of the Telegram wallet is only 5%, while WeChat Pay's penetration rate is 92.4%.

However, it is undeniable that Telegram remains the product with the highest penetration in the crypto space. By tapping into the existing high-net-worth crypto user base, it can offset the current shortcomings of Telegram mini-programs. Therefore, the successful model of WeChat mini-programs is entirely worth referencing.

4.3 Project Construction Paths That Can Be Referenced from WeChat Mini-Program/Game Ecosystems

By reviewing the development history of the WeChat mini-game ecosystem, we find that the survival of WeChat mini-game developers is highly dependent on the level of developer services provided by WeChat.

Timeline of WeChat Mini-Program Development and Project Examples, Source: Waterdrip Capital

Timeline of the Wild Growth of WeChat Mini-Programs

During this stage, WeChat's operations lagged, and the ecosystem developed wildly: due to the ease of acquiring a large number of users through viral sharing, there were many "skin-swapping" games developed in 5 days and recouped costs in 3 days, leading to relatively rough game quality.

During this stage, mini-game distribution adopted a decentralized approach, with the main user acquisition sources relying on other mini-programs and WeChat Ads.

The revenue of mini-games and free mini-programs during this period mainly came from advertising (IAA) monetization, that is, importing users from other mini-games or mini-programs and integrating WeChat advertising monetization plugins.

What is worth noting for Web3 developers is that, in comparison, Telegram is also in the current stage. Excluding the phenomenal game "Pirates Are Coming," 98% of the top 50 games during this period were casual and casual competitive games, such as "Happy Landlord," "Number Three Elimination," "Brainstorm," "Geometry Escape," and "I Want to Be the Emperor." Among them, "I Want to Be the Emperor" shares similar gameplay with the current Catizen.

2020 - 2022, Ecosystem Adjustment

During this period, there were certain macro-specificities due to the pandemic, such as the health code mini-program having 800 million users in 2020.

By October 2022, the monthly active users of WeChat mini-programs reached 1 billion. The WeChat mini-program ecosystem focused on enhancing the scale of traditional industries, such as education, healthcare, and catering, while guiding the gaming industry to improve product quality, providing developers with over 100 functions and interfaces, and continuously enhancing its commercialization monetization (IAA and IAP) services.

During this period, the only phenomenal product among WeChat mini-games was "Sheep Has Come." As WeChat continuously raised its requirements for game content quality and restricted sharing and viral behaviors, WeChat mini-games presented a smile curve. However, the results show that WeChat's operational strategy was successful. Among the selected games, 50 games generated revenue exceeding $50 million, and 7 games generated over $100 million.

WeChat Mini-Game User "Smile Curve," Source: Waterdrip Capital

What is worth noting for Web3 developers is that: the best-selling games during this period were still casual competitive products, such as card games. From a gameplay perspective, card, MMORPG, management, and idle games generated the highest revenue.

2023 to Present, Stability Amidst Explosions

Thanks to WeChat mini-games continuously guiding developers to create high-quality content and optimizing technical support for mini-games, a large number of mid-to-heavy high-revenue games have emerged.

According to Tencent's Q1 2024 financial report, the total user usage time of WeChat mini-programs grew by over 20% year-on-year. Meanwhile, the revenue of WeChat mini-games in 2023 increased threefold compared to 2022, with over 240 games generating quarterly revenue exceeding $10 million within a year.

The reasons for the explosion of WeChat mini-programs/mini-games during this period include:

• Allowing WeChat mini-games and mini-programs to advertise on external platforms (e.g., Douyin), further enhancing advertising efficiency;
• Introducing live streaming as a user acquisition channel;
• The leading categories of best-selling games gradually shifted from predominantly card games to MMORPGs, idle, card, and management games;
• Commercialization monetization transitioned from a single IAA or IAP to a mixed monetization model (both IAA and IAP).

4.4 Lessons TON Can Learn from WeChat Mini-Program Growth

• Continuously strive to address the concerns of developers (PMF), such as improving compatibility with game engines, enhancing user acquisition efficiency, opening external performance marketing channels for Telegram mini-programs, increasing wallet penetration, and strengthening support for commercialization solutions;
• Have a rapid response speed to market changes like WeChat (WeChat made multiple adjustments to ecosystem operation policies every month in its early stages);
• Provide support for every startup product as much as possible, such as offering special, free traffic support policies for each mini-program (in comparison to WeChat mini-programs' selection policies);
• Encourage the ecosystem to produce high-quality content.