Hey,

Bear markets are good times to think of the opportunity cost of being in crypto. There is a social, mental and physical cost to working in an industry that operates round the clock. Thanks to how tokens work, the definition of a "successful' founder in the blockchain ecosystem is slightly different to what it used to be in the traditional world. You can frequently see founders with no products, users or business models making incredible sums of money for themselves and their investors - solely based on hype.

You don’t need traction, sticky users or revenue to own a "billion dollar protocol" in crypto. Many of our most significant "successes" make no meaningful change in the lives of people outside the industry. This becomes a focal point every time regulatory authorities seek to create laws around the technology, especially in emerging markets. Screaming WAGMI into the void doesn't make a dent in the universe.

I could argue that our industry has a strong case of the Peter Pan syndrome. It describes a predicament where an individual grows to have the body of an adult but a child's mind. The games we play - as founders, investors and users of the technology can often seem juvenile externally. So long as there is capital to be made through these games, there will be players - and the game will go on. 

But billion-dollar outcomes - the kind which Coinbase, FTX and Binance have been able to deliver, they take years of effort. Consumer-facing mobile apps have been the biggest driver of growth in the industry in the last five years. It partly explains why Wyre and Moonpay) were valued at $1.5 billion and $3.4 billion, respectively. What is common between them? They are crucial infrastructure for applications onboarding retail users through micro-transactions, primarily through mobile devices.

If crypto has to evolve from its Peter Pan syndrome, it has to reach the average person that does not want to care about private keys and protocol maximalism. The means through which we unlock the next few trillion in value is by caring about what people outside the Twitter feeds want. This piece is a preliminary exploration of the motivations, macro-trends and opportunities that could be tapped into by founders looking to build in the industry. With that context, let's dig in.

To understand why most of web3 today is desktop-oriented, consider that most of the users that remain in crypto today likely came between 2017 and 2019. The era saw some $25 billion in capital flowing to ±8000+ ICOs. It was the golden age, where anybody could trade and make a quick buck. But as with most things trading - your edge relied on how fast you could access information. This meant charts, chats and newsfeeds that were constantly updating.

The user experience of the average person entering the space in that era revolved around getting a significant enough capital deposit to an ICO. Then hoping it lists at a large enough multiple. It was the greater fool theory in all its glory. Once a token did list, you were looking for the next ICO to deploy money. This drastically differed from pre-2017, where you could only transact (send/receive) or trade digital assets. It was when wallets like Myetherwallet and Metamask began eating into Jaxx's lunch.

As the DeFi ecosystem eventually evolved into the behemoth it is today, desktop-based interfaces became the norm through which users interacted with the industry. The reasons for this are two-fold, in my opinion. Firstly, the large institutions deploying money into the DeFi protocols that attracted the most in TVL required security infrastructure that often came only through a browser-based wallet like Metamask. Smart contract interactions and adding new tokens were more accessible through a desktop-based interface.

The flywheel incentivised developers to build for the minority of users with the majority of capital. Products could be shipped without emphasising on the end user's experience because the primary focus was absorbing as much as possible in TVL. Unfortunately, it also meant that most retail users that came into the ecosystem were excluded from using these new DeFi primitives through most of 2020.

Seeing mobile as a distribution medium for web3 apps boils down to which device captures the most human attention. Even when we use devices like the Television - which are, by design, attention-consuming devices- smartphones are in the periphery. It is the interface through which we get educated, date, entertain ourselves, buy groceries, pay our bills and find new ways to resent existence. In excluding a focus on mobile devices, we are excluding large swaths of the internet that can benefit from the benefits Web3 enables. By 2013, the number of hours spent online through mobile devices had surpassed the number of hours we are on the internet through laptops or desktop.

Building on mobile interfaces also enable access to elements of ownership for people that historically had little or no access to it. Mobile first applications accelerate digitisation, collapsing costs, and making services more affordable to a larger population.

In the past, access to complex financial products and products that enabled ownership were high-cost, low-margin products. It explains why banking the unbanked was historically a huge problem. Employee hours scale linearly while customer bases scale exponentially. In the absence of digitisation, it costs an incredible amount of time spent per customer to service an evergrowing user base. Since their average savings were on the low end (sub $100), the amount generated in revenue by the bank on these accounts was minuscule.

Traditionally, for a lender to issue loans to ten-thousand users - it meant hiring credit assessment personnel in proportion. Say 1:100, assuming credit assessors are incredibly efficient. When digital banks came along, AML/KYC and distribution functions scaled exponentially, reducing the time spent on it—allowing digital platforms to scale with a smaller team. The cost incurred to service each new user diminishes as the user base scales.

In the case of Compound and Aave, the cost incurred goes even lower since smart contracts run on Ethereum. The DAO does not run the infrastructure itself (the underlying blockchain). This excludes the fact that they have zero credit assessment or AML/KYC costs.

Digital banks inverted the unit economics for inclusion. Suddenly, banks no longer needed to set up offices in remote parts of the world. Instead, they could reach their users, conduct necessary KYC and offer banking services through connectivity enabled by mobile devices. The wonders of what this enabled are most evident in India. A state-owned payments network in the region named UPI- has scaled from doing $4 billion in transactions to over $120 billion in transaction volume each month in four years. Indians do 72 billion transactions digitally each year.

DeFi promised to make investment bank-grade products accessible for everyone. This is a variation of the promise of ICOs. The idea was that everyone could now invest in early-stage ventures. By and large - this is true, but it excludes the fact that too often, people want simple primitives that are set and forgotten. Not ones that require constant monitoring. One instance I have to prove this is the case of JarHQ from India. The app ranks consistently in the region's top 20 for UPI transaction volume. What are users doing so many transactions for? To buy gold for as little as $0.05.

Historically, buying gold was an aspirational act in India. It involved saving enough to buy the smallest amount possible. You then lost money to the middle man that sold the gold to you and worried about where to store it. Jar flipped the unit economics around it. By focusing on digital gold depositories, they reduced the amount of money needed to buy it. By focusing on a market like India, they could focus on scaling at a pace most of their traditional, store-first counterparts could not.

How does all of this translate to DeFi? In my understanding, most founders have pivoted towards building products for institutions. Why? Because you can build with scrappy UX, focus on a handful of customers and claim to have billions in TVL. Since your customer base is almost entirely of sophisticated financial managers, there is also little effort spent on raising awareness about the product sold. It made commercial sense. The vast majority of the volume came from desktop users. On the other side, exchanges see close to 90% of their userbase coming through mobile apps. At the crux of building on desktop vs mobile is this tussle between volume of capital and human mindshare.

In playing cyclical loops of pumping TVL and projecting activity where there are none, we forgot that DeFi could be used to offer financial products that have historically been not cost-effective for large parts of the market. 

I was curious to understand more about user motivations and behavioural patterns of wallet users in emerging markets. Ravindra from Frontier wallet was kind enough to give his input on what he has been observing on his product. Frontier wallet was one of the earliest smart-contract-based wallets in the market. It allows users to easily track their portfolios across multiple blockchains without interacting with the explorers of each chain.

Ravindra observes that Frontier's users save between $1000 to $10,000 on average. These users are more crypto-savvy than the average user storing assets on an exchange. The wallet balance of the average user in an Indian exchange is closer to $150 to$200. These users interact directly with multiple smart contracts with an interest in generating yield denominated in USD. In inflation-struck regions like Turkey (one of Frontier's larger markets), being able to store digital dollars and generate yield makes an incredible difference.

He has seen a different subset of users seeking to use Web3 as a consumption rail. These users typically interact on-chain with music or gaming-related NFTs. In his view, the next wave of digital asset users will not be coming on chain to speculate but to be entertained. In 2021, when I first wrote about NFTs - I mentioned that instruments like NFTs make mimetic proximity a possibility for users in emerging markets. A year on - celebrities ranging from Justin Bieber to jay Z have engaged with the asset class in some form. 

In my view, the arc of user growth in the context of digital assets will follow a pattern very similar to that of what we are witnessing with digital consumption in India. The data above sheds light on how many years' worth of time is spent by Indians on consuming different app categories in a given year. The power law is pretty self-explanatory. Given that social media and entertainment are passive apps that require zero effort - they find the most users.

The consumption pattern almost follows Maslov's hierarchy in a very loose sense. In this case, people start with meeting their basic needs - a place to spend their attention. Then, go up the arc towards financial services for transactions and savings. And a tiny subsection trickle towards education or upskilling. I tried making a Maslov’s hierarchy of needs on the internet based on the above data.

In the case of Web3 - we have this relationship inverted. Most of us spend our time on Telegram, Discord and Twitter. The markets are a source of entertainment, but it comes at a tremendous financial cost. Web3 apps today are incredibly focused on the thin layer of financial applications or speculations. If the industry is to be relevant to the vast majority of the internet, it needs to look towards where much of the web today is. Apps that require no buy-in but entertain or connect people.

This is not to suggest we are not working towards it. Axie Infinity’s massive run-up in 2021 was partly fuelled by the fact that the team spent two years building one of the largest web3, mobile-first userbases. More recently - Sweatcoin, a web2 app with ±3-4 million DAU, has launched a token-enabled economy within the app.

Apps like Mirror, Coinvise and OpenSea allow creators to build stronger commercial links with their users. But in almost all of these cases, we assume the user will engage in a transaction. Our focus should be on enabling passive engagement. One where a user can benefit, without proactively transacting or posting. There is a category of apps that will likely lead that transition.

That category is games. They are rich in digital assets, have some of the largest userbases, appeal across demographics and have the lowest buy-in requirements. Unlike most crypto applications today, games give users a sense of community and entertainment.

They could be massive on-rams. Educating users about wallets, conducting transactions or interacting with NFTs becomes incredibly easier through games due to the overlap in user behaviour between those who play games and those involved in crypto. I have been building perspective on this over the past six months with one of India’s largest gaming studios. We will publish on it soon.

Web3 today is a community of over-excited tech bros explaining how tracing monkey pictures to wallet addresses is groundbreaking. (I just described myself) But, if it has to seep into the fabric of society, we need to think clearly about how people interact with the technology stack. We need to build tools that alter how humans think of why they should care about this technology. In Steve Jobs’ terms, we need to stop selling sugary water.

There are a few firms already working towards this vision. Bluejay, for instance, is working on a stablecoin for emerging markets. Goldfinch has issued over $100 million in loans for SMEs globally. Going by data on Crypto-art, the hype around NFTs is justified because it has enabled close to 900 artists to earn north of $100k in the past year. Over 10,0000 artists have made north of $2000. So there are sections of the market where we are making meaningful change - but the means for it to scale towards every individual is through mobile interfaces.

Our focus as an industry should be on enabling this transition from a chaotic, confusing Web3 that sends users scurrying in different directions to one that is guided, curated and useful. All whilst retaining the traits åthat make crypto desirable in the first place . Decentralised and inclusive. 

Consider joining us at Telegram if you enjoyed reading this.

Joel

________

P.s. - If you mint. this piece, consider joining us at Guild.xyz/dco-cafe

Subscribe so I can notify you when there’s something new

subscribe://

Collect this piece for no reason.

collect://

Hey,

Bear markets are good times to think of the opportunity cost of being in crypto. There is a social, mental and physical cost to working in an industry that operates round the clock. Thanks to how tokens work, the definition of a "successful' founder in the blockchain ecosystem is slightly different to what it used to be in the traditional world. You can frequently see founders with no products, users or business models making incredible sums of money for themselves and their investors - solely based on hype.

You don’t need traction, sticky users or revenue to own a "billion dollar protocol" in crypto. Many of our most significant "successes" make no meaningful change in the lives of people outside the industry. This becomes a focal point every time regulatory authorities seek to create laws around the technology, especially in emerging markets. Screaming WAGMI into the void doesn't make a dent in the universe.

I could argue that our industry has a strong case of the Peter Pan syndrome. It describes a predicament where an individual grows to have the body of an adult but a child's mind. The games we play - as founders, investors and users of the technology can often seem juvenile externally. So long as there is capital to be made through these games, there will be players - and the game will go on. 

But billion-dollar outcomes - the kind which Coinbase, FTX and Binance have been able to deliver, they take years of effort. Consumer-facing mobile apps have been the biggest driver of growth in the industry in the last five years. It partly explains why Wyre and Moonpay) were valued at $1.5 billion and $3.4 billion, respectively. What is common between them? They are crucial infrastructure for applications onboarding retail users through micro-transactions, primarily through mobile devices.

If crypto has to evolve from its Peter Pan syndrome, it has to reach the average person that does not want to care about private keys and protocol maximalism. The means through which we unlock the next few trillion in value is by caring about what people outside the Twitter feeds want. This piece is a preliminary exploration of the motivations, macro-trends and opportunities that could be tapped into by founders looking to build in the industry. With that context, let's dig in.

To understand why most of web3 today is desktop-oriented, consider that most of the users that remain in crypto today likely came between 2017 and 2019. The era saw some $25 billion in capital flowing to ±8000+ ICOs. It was the golden age, where anybody could trade and make a quick buck. But as with most things trading - your edge relied on how fast you could access information. This meant charts, chats and newsfeeds that were constantly updating.

The user experience of the average person entering the space in that era revolved around getting a significant enough capital deposit to an ICO. Then hoping it lists at a large enough multiple. It was the greater fool theory in all its glory. Once a token did list, you were looking for the next ICO to deploy money. This drastically differed from pre-2017, where you could only transact (send/receive) or trade digital assets. It was when wallets like Myetherwallet and Metamask began eating into Jaxx's lunch.

As the DeFi ecosystem eventually evolved into the behemoth it is today, desktop-based interfaces became the norm through which users interacted with the industry. The reasons for this are two-fold, in my opinion. Firstly, the large institutions deploying money into the DeFi protocols that attracted the most in TVL required security infrastructure that often came only through a browser-based wallet like Metamask. Smart contract interactions and adding new tokens were more accessible through a desktop-based interface.

The flywheel incentivised developers to build for the minority of users with the majority of capital. Products could be shipped without emphasising on the end user's experience because the primary focus was absorbing as much as possible in TVL. Unfortunately, it also meant that most retail users that came into the ecosystem were excluded from using these new DeFi primitives through most of 2020.

Seeing mobile as a distribution medium for web3 apps boils down to which device captures the most human attention. Even when we use devices like the Television - which are, by design, attention-consuming devices- smartphones are in the periphery. It is the interface through which we get educated, date, entertain ourselves, buy groceries, pay our bills and find new ways to resent existence. In excluding a focus on mobile devices, we are excluding large swaths of the internet that can benefit from the benefits Web3 enables. By 2013, the number of hours spent online through mobile devices had surpassed the number of hours we are on the internet through laptops or desktop.

Building on mobile interfaces also enable access to elements of ownership for people that historically had little or no access to it. Mobile first applications accelerate digitisation, collapsing costs, and making services more affordable to a larger population.

In the past, access to complex financial products and products that enabled ownership were high-cost, low-margin products. It explains why banking the unbanked was historically a huge problem. Employee hours scale linearly while customer bases scale exponentially. In the absence of digitisation, it costs an incredible amount of time spent per customer to service an evergrowing user base. Since their average savings were on the low end (sub $100), the amount generated in revenue by the bank on these accounts was minuscule.

Traditionally, for a lender to issue loans to ten-thousand users - it meant hiring credit assessment personnel in proportion. Say 1:100, assuming credit assessors are incredibly efficient. When digital banks came along, AML/KYC and distribution functions scaled exponentially, reducing the time spent on it—allowing digital platforms to scale with a smaller team. The cost incurred to service each new user diminishes as the user base scales.

In the case of Compound and Aave, the cost incurred goes even lower since smart contracts run on Ethereum. The DAO does not run the infrastructure itself (the underlying blockchain). This excludes the fact that they have zero credit assessment or AML/KYC costs.

Digital banks inverted the unit economics for inclusion. Suddenly, banks no longer needed to set up offices in remote parts of the world. Instead, they could reach their users, conduct necessary KYC and offer banking services through connectivity enabled by mobile devices. The wonders of what this enabled are most evident in India. A state-owned payments network in the region named UPI- has scaled from doing $4 billion in transactions to over $120 billion in transaction volume each month in four years. Indians do 72 billion transactions digitally each year.

DeFi promised to make investment bank-grade products accessible for everyone. This is a variation of the promise of ICOs. The idea was that everyone could now invest in early-stage ventures. By and large - this is true, but it excludes the fact that too often, people want simple primitives that are set and forgotten. Not ones that require constant monitoring. One instance I have to prove this is the case of JarHQ from India. The app ranks consistently in the region's top 20 for UPI transaction volume. What are users doing so many transactions for? To buy gold for as little as $0.05.

Historically, buying gold was an aspirational act in India. It involved saving enough to buy the smallest amount possible. You then lost money to the middle man that sold the gold to you and worried about where to store it. Jar flipped the unit economics around it. By focusing on digital gold depositories, they reduced the amount of money needed to buy it. By focusing on a market like India, they could focus on scaling at a pace most of their traditional, store-first counterparts could not.

How does all of this translate to DeFi? In my understanding, most founders have pivoted towards building products for institutions. Why? Because you can build with scrappy UX, focus on a handful of customers and claim to have billions in TVL. Since your customer base is almost entirely of sophisticated financial managers, there is also little effort spent on raising awareness about the product sold. It made commercial sense. The vast majority of the volume came from desktop users. On the other side, exchanges see close to 90% of their userbase coming through mobile apps. At the crux of building on desktop vs mobile is this tussle between volume of capital and human mindshare.

In playing cyclical loops of pumping TVL and projecting activity where there are none, we forgot that DeFi could be used to offer financial products that have historically been not cost-effective for large parts of the market. 

I was curious to understand more about user motivations and behavioural patterns of wallet users in emerging markets. Ravindra from Frontier wallet was kind enough to give his input on what he has been observing on his product. Frontier wallet was one of the earliest smart-contract-based wallets in the market. It allows users to easily track their portfolios across multiple blockchains without interacting with the explorers of each chain.

Ravindra observes that Frontier's users save between $1000 to $10,000 on average. These users are more crypto-savvy than the average user storing assets on an exchange. The wallet balance of the average user in an Indian exchange is closer to $150 to$200. These users interact directly with multiple smart contracts with an interest in generating yield denominated in USD. In inflation-struck regions like Turkey (one of Frontier's larger markets), being able to store digital dollars and generate yield makes an incredible difference.

He has seen a different subset of users seeking to use Web3 as a consumption rail. These users typically interact on-chain with music or gaming-related NFTs. In his view, the next wave of digital asset users will not be coming on chain to speculate but to be entertained. In 2021, when I first wrote about NFTs - I mentioned that instruments like NFTs make mimetic proximity a possibility for users in emerging markets. A year on - celebrities ranging from Justin Bieber to jay Z have engaged with the asset class in some form. 

In my view, the arc of user growth in the context of digital assets will follow a pattern very similar to that of what we are witnessing with digital consumption in India. The data above sheds light on how many years' worth of time is spent by Indians on consuming different app categories in a given year. The power law is pretty self-explanatory. Given that social media and entertainment are passive apps that require zero effort - they find the most users.

The consumption pattern almost follows Maslov's hierarchy in a very loose sense. In this case, people start with meeting their basic needs - a place to spend their attention. Then, go up the arc towards financial services for transactions and savings. And a tiny subsection trickle towards education or upskilling. I tried making a Maslov’s hierarchy of needs on the internet based on the above data.

In the case of Web3 - we have this relationship inverted. Most of us spend our time on Telegram, Discord and Twitter. The markets are a source of entertainment, but it comes at a tremendous financial cost. Web3 apps today are incredibly focused on the thin layer of financial applications or speculations. If the industry is to be relevant to the vast majority of the internet, it needs to look towards where much of the web today is. Apps that require no buy-in but entertain or connect people.

This is not to suggest we are not working towards it. Axie Infinity’s massive run-up in 2021 was partly fuelled by the fact that the team spent two years building one of the largest web3, mobile-first userbases. More recently - Sweatcoin, a web2 app with ±3-4 million DAU, has launched a token-enabled economy within the app.

Apps like Mirror, Coinvise and OpenSea allow creators to build stronger commercial links with their users. But in almost all of these cases, we assume the user will engage in a transaction. Our focus should be on enabling passive engagement. One where a user can benefit, without proactively transacting or posting. There is a category of apps that will likely lead that transition.

That category is games. They are rich in digital assets, have some of the largest userbases, appeal across demographics and have the lowest buy-in requirements. Unlike most crypto applications today, games give users a sense of community and entertainment.

They could be massive on-rams. Educating users about wallets, conducting transactions or interacting with NFTs becomes incredibly easier through games due to the overlap in user behaviour between those who play games and those involved in crypto. I have been building perspective on this over the past six months with one of India’s largest gaming studios. We will publish on it soon.

Web3 today is a community of over-excited tech bros explaining how tracing monkey pictures to wallet addresses is groundbreaking. (I just described myself) But, if it has to seep into the fabric of society, we need to think clearly about how people interact with the technology stack. We need to build tools that alter how humans think of why they should care about this technology. In Steve Jobs’ terms, we need to stop selling sugary water.

There are a few firms already working towards this vision. Bluejay, for instance, is working on a stablecoin for emerging markets. Goldfinch has issued over $100 million in loans for SMEs globally. Going by data on Crypto-art, the hype around NFTs is justified because it has enabled close to 900 artists to earn north of $100k in the past year. Over 10,0000 artists have made north of $2000. So there are sections of the market where we are making meaningful change - but the means for it to scale towards every individual is through mobile interfaces.

Our focus as an industry should be on enabling this transition from a chaotic, confusing Web3 that sends users scurrying in different directions to one that is guided, curated and useful. All whilst retaining the traits åthat make crypto desirable in the first place . Decentralised and inclusive. 

Consider joining us at Telegram if you enjoyed reading this.

Joel

________

P.s. - If you mint. this piece, consider joining us at Guild.xyz/dco-cafe

Subscribe so I can notify you when there’s something new

subscribe://

Collect this piece for no reason.

collect://