The Next Bull Market Driver: An Overview of Mainstream Paradigms, Opportunities, and Challenges in Web3 Consumer Applications
This article provides an overview of the current mainstream paradigms of Web3 consumer applications and explores their respective opportunities and challenges.Author: ++@Web3Mario++
Abstract: Recently, market sentiment has been relatively low, as potential policy dividends have gradually materialized but have not met expectations. Additionally, with celebrities like Trump harvesting liquidity from the crypto speculation market through Memecoins, the two-year-long wave of cryptocurrency speculation driven by macroeconomic benefits seems to have come to an end. In response, an increasing number of investors and believers have begun to contemplate the next value narrative for the Web3 industry, with the Web3 consumer application track becoming the focal point of many discussions. Only with more consumer-level applications and mass adoption can this overbuilt infrastructure ecosystem achieve true user adoption and sustainable business value. Therefore, during this period, I have been contemplating issues related to Web3 consumer applications. I would like to share some insights with everyone. In this article, I will provide an overview of the mainstream paradigms of current Web3 consumer applications and explore their respective opportunities and challenges. In subsequent articles, I will continue to share specific market opportunity insights and thoughts, and I welcome friends to communicate with me.
What is a Web3 Consumer Application
A Consumer Application, in the Chinese context, refers to To C applications, meaning that your target users are the majority of ordinary consumers rather than enterprise-level users. Open your App Store, and all the applications inside belong to this category. Web3 Consumer Applications refer to those software applications aimed at consumers that have Web3 characteristics.
Typically, according to the classifications found in most App Stores, we can roughly divide the entire Consumer Application track into the following 10 categories, each with different subcategories. Of course, as the market matures, many new products will combine multiple features to find their unique selling points to some extent, but we can still categorize them based on their core selling points.
What Current Web3 Consumer Application Paradigms Exist and Their Opportunities and Challenges
As of now, I believe there are three common paradigms of Web3 Consumer Applications:
- Utilizing the technical characteristics of Web3 infrastructure to optimize certain issues present in traditional Consumer Applications:
This is a relatively common paradigm. We know that a large amount of investment in the Web3 industry revolves around infrastructure construction, and creators of applications adopting this paradigm hope to leverage the technical characteristics of Web3 infrastructure to enhance their product's competitive advantage or provide new services. Typically, we can categorize the benefits brought by these technological innovations into the following two types:
Extreme privacy protection and data sovereignty:
Opportunity: The privacy track has always been the main theme of Web3 infrastructure innovation, from the initial asymmetric encryption algorithm identity verification systems to the integration of numerous software and hardware technologies, such as ZK, FHE, and TEE. Many technical experts in Web3 seem to adhere to an extreme view of human nature, aiming to create a network environment that does not rely on third-party trust and provides users with the ability to interact with information or value. The most direct benefit of this technical characteristic is that it brings data sovereignty to users, allowing personal privacy information to be directly hosted on locally trusted software and hardware devices, thus avoiding the leakage of privacy information. There are many Web3 Consumer Applications optimized for this technical characteristic; any project that claims to be decentralized XX falls into this paradigm, such as decentralized social media platforms, decentralized AI large models, decentralized video websites, and so on.
Challenge: After years of market validation, it can be said that using this as a core selling point has not shown significant advantages in market competition for two reasons. First, consumer users' emphasis on privacy is based on large-scale privacy breaches and infringement events, but in most cases, more comprehensive laws and regulations can effectively alleviate these issues. Therefore, if privacy protection is based on a more complex product experience or higher usage costs, its competitiveness will be significantly insufficient. Second, we know that the current business models of most consumer applications are built on extracting value from big data, such as precision marketing. Overemphasizing privacy protection can undermine mainstream business models because user data will be scattered across a number of data islands, making it difficult to design sustainable business models. If it ultimately relies solely on so-called "Tokenomics," it will inevitably introduce unnecessary speculative attributes into the product, which will divert the team's resources and energy to cope with the impact of this attribute on the product, and it will also be detrimental to finding PMF, which will be analyzed in detail below.
Low-cost, globally available, and trustworthy execution environment:
Opportunity: The emergence of numerous L1 and L2 solutions has provided application developers with a new, global, and round-the-clock multi-party trustworthy program execution environment. Typically, traditional software service providers independently maintain their programs, such as running them on their own server clusters or in the cloud. This naturally incurs trust costs in businesses involving multi-party collaboration, especially when the parties involved are of equal strength or scale, or when the data involved is particularly sensitive and critical. These trust costs usually translate into significant development costs and user usage costs, such as in cross-border payment scenarios. Utilizing the execution environment brought by Web3 can effectively reduce the related costs of providing such services. Stablecoins are a good example of such applications.
Challenge: From the perspective of cost reduction and efficiency improvement, this is indeed a competitive advantage, but exploring application scenarios is relatively difficult. As mentioned above, only in a service involving multi-party collaboration, where the relevant parties are independent, of equal scale, and the data involved is particularly sensitive, does using this execution environment bring benefits. This is a relatively stringent condition. Currently, most of these application scenarios are concentrated in the financial services sector.
- Utilizing crypto assets to design new marketing strategies, user loyalty programs, or business models:
Similar to the first point, application developers adopting this paradigm also hope to gain a competitive advantage for their products by introducing Web3 attributes in a relatively mature and market-validated scenario. However, these application developers focus more on introducing crypto assets and leveraging their high financial attributes to design better marketing strategies, user loyalty programs, and business models.
We know that any investment target has two types of value: commodity attributes and financial attributes. The former relates to the use value of the target in a specific practical scenario, such as the livability of real estate assets, while the latter relates to its trading value in the financial market. This trading value in the crypto asset field usually comes from liquidity and high volatility. Crypto assets are a category of assets where financial attributes far exceed commodity attributes.
In the eyes of most developers of such applications, introducing crypto assets can typically bring three benefits:
Lower customer acquisition costs through Token-based marketing activities like Airdrops:
Opportunity: For most consumer applications, how to acquire customers at a low cost in the early stages of a project is a key issue. Tokens, with their high financial attributes and being assets created from scratch, can significantly reduce the risks of early-stage projects. After all, compared to directly spending real money to buy traffic and gain exposure, using zero-cost created Tokens for user acquisition is indeed a more cost-effective choice. From a certain perspective, such Tokens are similar to advertising Tokens. There are numerous projects adopting this paradigm, such as most TON ecosystem projects and casual games.
Challenge: This customer acquisition method faces two main issues. First, the conversion cost of seed users acquired through this method is extremely high. We know that the users attracted by this scheme are mostly cryptocurrency speculators, so their attention to the project itself is not very strong; they are more interested in the potential financial attributes of the rewards. Moreover, there are currently many professional airdrop hunters or "yield farming" studios, which makes it extremely difficult to convert them into actual product users later on. This may also lead to a misjudgment of the project's PMF, resulting in excessive investment in the wrong direction. Second, with the widespread application of this model, the marginal returns of acquiring customers through Airdrops are diminishing, which means that if you want to establish sufficient attraction among cryptocurrency speculators, the costs will gradually increase.
User loyalty programs based on X to Earn:
Opportunity: Retention and activation are another concern for consumer applications. Ensuring that users continue to use your product requires significant effort and cost. Similar to marketing, utilizing the financial attributes of Tokens to lower retention and activation costs is a common choice for most such projects. A representative model is X to Earn, which rewards users based on predefined key behaviors with Tokens, thereby establishing user loyalty programs.
Challenge: Relying on users' motivation to earn returns for activation will shift their focus from the product's functionality to the yield. Therefore, if potential yields decline, user attention will quickly fade, which is a significant harm to consumer applications, especially for products that rely heavily on UGC. If the yield is based on the price of the Tokens issued by the project, it will put pressure on the project team for market cap management, especially in bear markets, where they will have to bear high maintenance costs.
Direct monetization using the financial attributes of Tokens:
Opportunity: For traditional consumer applications, the most common business models are twofold: one is free usage, monetizing through the platform's traffic value after large-scale adoption, and the other is paid usage, where users must pay a fee to access certain Pro services within the product. However, the former has a longer cycle, and the latter is more challenging. Therefore, Tokens introduce a new business model, which is to directly monetize by selling Tokens.
Challenge: It can be clearly stated that this is an unsustainable business model. The reason is that once a project moves past the early high-growth stage, due to a lack of incremental capital inflow, this zero-sum game model will inevitably place the project's interests in opposition to user interests, accelerating user churn. If the project does not actively cash out, it will have to rely on financing to maintain the team or expand the business due to a lack of robust cash flow revenue, which will lead to a predicament of being dependent on market conditions.
- Completely serving Web3 native users and addressing their unique pain points:
The last paradigm refers to consumer applications that fully serve Web3 native users. They can be roughly divided into two categories based on innovation direction:
Constructing new narratives and monetizing certain untapped value elements around Web3 native users to create new asset classes:
Opportunity: By providing Web3 native users with new speculative targets (such as in the SocialFi track), the benefit lies in having pricing power over a certain asset from the project's initial stage, thus obtaining monopoly profits, which in traditional industries requires fierce market competition to build strong competitive barriers.
Challenge: Frankly speaking, this paradigm relies heavily on team resources, specifically whether it can gain recognition and support from individuals or institutions with strong influence among Web3 native users or those possessing "pricing power" over crypto assets. This brings two difficulties: first, as the market develops, the pricing power of crypto assets dynamically shifts among different groups, for example, from the initial Crypto OGs to crypto VCs, then to CEXs, crypto KOLs, and finally to traditional politicians, entrepreneurs, or celebrities. In this process, the ability to identify trends and establish cooperation with the new elites during each transition of power places high demands on team resources and market sensitivity. Second, establishing cooperative relationships with "price setters" usually requires substantial costs and sacrifices because in this market, you are not competing for a larger market share within a specific application track against other opponents, but rather competing with all other crypto asset creators for the preferences of "price setters," which is a highly competitive game.
Providing new tool-based products to meet unmet needs of Web3 native users during their market participation, or offering better and more convenient products from the user experience perspective:
Opportunity: I believe this is the most promising paradigm moving forward. As cryptocurrencies gradually become more popular, the overall base of this user group will expand, creating possibilities for user segmentation. Moreover, by focusing on the real needs of a specific user group, such products often achieve PMF more easily, thereby establishing a more robust business model, such as trading-related data analysis platforms, Trading Bots, information platforms, etc.
Challenge: Since it returns to the genuine user needs, although the development path of the product is more robust, the construction cycle is longer than that of other paradigms. Additionally, as these projects are driven by specific needs rather than narratives, the PMF of the product is easier to validate, but in the early stages of the project, it usually cannot secure large amounts of financing. Therefore, maintaining patience and staying true to one's original intentions amidst the complex myths of wealth brought by "token issuance" or high-valuation financing is a challenging task.
Of course, these three paradigms are not completely independent; you can see their shadows in many projects. This classification is merely for the sake of analysis. Therefore, for those looking to start a business in the Web3 Consumer Application track, comprehensively assessing their own advantages and demands and choosing the paradigm that best suits them is of utmost importance.
