By now, you have probably heard about all the problems that web 2.0 platform have. They are centralized. You don't own content. Your data is not protected. At the same time, you continue to use web 2.0 products. You find yourself doomscrolling TikTok. It is so addicting! You check Instagram to see how many likes your last story got. You go on X (formerly Twitter) to see the latest viral Tweets. Why is that your actions don't match your words. You blame web 2.0 for all the problems it has and yet you can't imagine a life without it. This begs the question: why do we really want web3 apps?

Most are in it for the money

For the vast majority of the market, their objective is be able to make money from crypto. Unlike social media, where users want to connect with other users, in crypto, people just want to invest to they can convert their $10 into $100 and get that 10x return. Contrast this with X where you check how many followers someone has or how many likes someone's tweets are getting. In the world of crypto, people are interested in airdrops, NFTs, yield farming, ICOs etc.

As a builder, how do you distribute money? You can just take VC money and distribute that. But that wouldn't be a very good business model. So what's the alternative?

Taking inspiration from Bitcoin

Bitcoin created a scarce, provable, digital commodity that could never be destroyed. Eventually people started attributing it monetary value and its price skyrocketed. How was it that Bitcoin was able to create this valuable commodity? In the earliest version of Bitcoin, the miners were the ones incentivized for running a software on their computer. They were able to generate the limited number of Bitcoin that could exist in circulation. Once Bitcoin had a non-zero value, an economy was bootstrapped. Now the holders were incentivized to pull more people in as it increased the value of Bitcoin. Broadly speaking, Bitcoin worked because people were incentivized to support it and spread the word.

More examples in crypto

A decade later, we had Uniswap. It allowed users to exchange any two tokens. Liquidity Providers would deposit into a two-sided pool so that traders can swap tokens. The fees taken from traders would be used to pay LPs. It's a simple but powerful concept providing benefits of transparency and composability and inviting everyone to participate. NFTs also proliferated society allowing early holders to gain in status. Artists were compensated through initial minting. It's not difficult to find other similar examples that demonstrate how early users had incentivizes to support and grow the protocol.

Values of community

Incentives alone are not sufficient. People must be aligned with the values of the product. Going back to the example of Bitcoin, the early users were believers that an alternative system of money could be created. In case of Uniswap, users believed in a decentralized financial system. In case of NFTs, users desire a cultural revolution and the ability to spread their message. Once, we know what people want, we can begin to create an economy and design the right incentives for it.

Dawn of social apps

The growth of Farcaster; the death spiral of Twitter; impending ban of TikTok has created a quite buzz. These are the topic user care about in this era. Decentralized money or finance are still relevant. But they have taken a bit of back seat. Anyone building today should be thinking social. Or else they miss out on the critical element of users caring.

Adding incentives to community

I talked a lot about aligning incentives for a cause. Social network traditionally have an in-built incentive: influence. But so far there had been no economic model tied to it. This can change now. It always felt a bit weird that on Twitter one post would be a meme and another that discussed key policy decision. Something felt a bit off. Many subculture co-existed together. Now that is changing. Take Farcaster for instance. Today, it has become an important platform for discussing crypto developments. Projects get visibility and are rewarded by the community. More social networks can be bootstrapped too. Such as for music, or games, or art. Each of such community can should gather around and leverage incentives to reward the appropriate behavior.

In a future post, I will give a more concrete example of how this can be modeled.