By “99 cent apps” I’m referring back to the late 2000s / early 2010s shortly after the launch of Apple’s App Store and Google’s Play Store. During that period, many of us have memories of checking the App / Play Store to see what was new and purchasing apps and widgets for 99 cents or less.

We didn’t know if the developer of the project would stick around and continue development next year. We didn’t seek out a highly polished experience. And we didn’t think much about paying 99 cents to try something out. A few examples of these apps include: the flashlight app, iBeer, Doodle Jump, the Vuvuzela app, the weather widget, and Camera+. I’m sure you can think of many more.

At this time, there was a prevailing culture around creating and trying apps without the pressure of needing it to be groundbreaking. It was low stakes, experimental, and fun. And while most of these apps didn’t grow into something larger, they confirmed that consumers would spend time and engage with apps using their touch screens; they proved that both gaming and social apps could have early traction; and they paved the way for more mature mobile apps down the road.

It is also a massive departure from the expectations a user has from a mobile app today. As the mobile app industry matured, consumer expectations around polish and support rose, and the App / Play Store charts ossified to a handful of apps every year. This is evident when looking at the top downloaded mobile apps, where 8 of the top 10 most downloaded apps from 2022 were also present in the charts for 2023. Culturally, we’ve developed an inertia for trying new things.

The reason I’m excited about the “99 cent apps” of crypto is because we’re on the precipice of rediscovering this culture for creating and trying new things. Just in the last few weeks, we’ve seen the launch of Frames on Farcaster and Crypto: the Game. And users are testing out these projects with the excitement to try something new. Just head over to /onchain-gaming on Warpcast as one example and you will feel the momentum and the creative energy from both builders and users.

We can thank the “infrastructure phase” for enabling a lot of what we see today. The two biggest historical bottlenecks to creative consumer crypto applications were (a) scalability and (b) user onboarding. The architectural move to rollups, along with rollup frameworks like OP Stack and RaaS providers like Conduit have lowered the barrier to creating new blockspace by an order of magnitude. For user onboarding, wallet providers like Privy have streamlined the user authentication experience and the ability to create wallets on behalf of your user in a safe way.

As the “99 cent app” phase of crypto moves forward from here, a few areas that I believe will be opportunities for further adoption:

• Discovery / distribution. Today, discovery for new apps and games happen on crypto Twitter and increasingly on Farcaster. As more 99 cent apps emerge, discovery will become more chaotic and challenging. The mobile app stores had the benefit of a single destination with dedicated charts and search. Will discovery mainly happen on Farcaster channels moving forward? Or are dedicated discovery solutions necessary to keep up with the growing volume of projects?

• Onboarding funds. Anyone who’s used crypto they’ve had for years to interact onchain knows the pain of being hit with a long list of taxable events the following year. Moreover, while bridging experiences will continue to improve, better fiat onramps will be just as effective, even for crypto native users. For most new crypto apps, I would prefer the ability to double-click, authorize Apple Pay to deposit $5 into a newly created Privy wallet. Coinbase has a massive advantage for delivering this experience given their integrated product portfolio of Coinbase Pay, Coinbase Wallet, and Base. Other wallets and rollups will need to find additional solutions if they don’t want to become fully dependent on Coinbase.

• Remixing. Some 99 cent apps will spark ideas for a remix of the original. As 99 cent apps are meant to be casual and fun, many will carry shorter half lives than apps intended to be more serious and polished. Remixing can extend the half life of a 99 cent app with new mechanics or rules that were not part of the original. The key question for remixes will be if and how credit is traced back to the original project.

Many people talk about Schelling points, but it’s rare to experience one first hand. We seem to be living through one today with the “99 cent app” phase of crypto, and I’m excited to test out these new ideas as a curious user.

A social network is the classic example of a network effect in action. If I am the only person in the network, it is not very useful; if 10 of my friends are in the network, it is more useful; and if all of my current and potential friends are in the network, it is very useful.

Network effects are powerful because each incremental user makes the network marginally more effective in acquiring and retaining users. This means that the cost to acquire and retain one more user decreases as the network grows [1]. Becoming more effective with more scale is the ultimate form of defensibility.

Most crypto projects we know strive to achieve network effects, primarily in the form of liquidity network effects. AMMs, lending protocols, and NFT marketplaces all chase it. The theory is that more liquidity begets better pricing; better pricing begets more users; more users beget more fees; and more fees beget more liquidity. 

Unfortunately, network effects are rare, and most businesses we know don’t have one. Instead, most businesses we know exhibit economies of scale, the other mechanism in which a business becomes more effective with greater scale.

Amazon’s fulfillment centers are a great example of economies of scale in action. If I’m the only Amazon customer in my town, the cost of delivering my package is significantly higher than if everyone in my town is an Amazon user. This is because Amazon can spread the fixed cost of delivery – warehouse facilities, delivery vans, and labor – across a greater number of users to drive down the delivery cost per customer [2]. 

Like network effects, economies of scale allows the product to become marginally more effective with each incremental user. Unlike network effects, economies of scale exist all around us.

Unfortunately, blockchains typically exhibit dis-economies of scale, where incremental usage makes the network marginally more expensive to use. Because blockchains have competitive fee markets for blockspace, more usage drives up the cost of blockspace.

One hypothesis I have is that we need to introduce economies of scale into blockchains to crack open a diversity of crypto applications. It’s hard to know why most crypto applications are variations of marketplaces that chase network effects. But only having access to network effects and not having access to economies of scale severely limits the types of defensible businesses that can be built onchain.

The big question is how we will achieve economies of scale. It will take creativity and tradeoffs between onchain and offchain components. For example, we created rollups to amortize blockspace across more transactions, but we still need to post all the data onchain. Is there a design where all data does not need to be onchain? To make tradeoffs, we will need to be thoughtful about what needs to be posted onchain, with what levels of verifiability, and with what levels of guarantees. Financial use cases, the current showcases of crypto applications, may not make sense to take these tradeoffs. But for web3 applications in social, gaming, and other verticals, economies of scale might be what we need to unleash their potential.

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[1] Here’s an illustrative example of how this happens:

• If a startup social network wants to grow from 1 user to 10 users (10x), it needs to invest in marketing to generate awareness and educate potential users about the benefits of joining.

• Let’s assume the cost of marketing to acquire a user is $10. To grow by 9 users, the social network needs to spend $90, and the total customer acquisition cost per user is $10.

• Now let’s assume that over the next few years, the social network has successfully grown larger. It now wants to grow from 1m users to 10m users (10x).

• Let’s assume the cost of marketing to acquire a user remains $10. This time, let’s also assume that the 1m users manage to convince one other friend to join the social network so they can be on it together.

• Because 1m users were acquired for free via word of mouth, the social network only needs to market to 8m users and spend $80m. The total customer acquisition cost per user is $8.89 ($80m marketing spend / 9m user growth).

• Customer acquisition cost decreased from $10 / user to $8.89 / user as the network grew.

[2] Illustrative example #2 for economies of scale:

• Let’s assume Amazon buys 1 warehouse, 1 delivery van, and employs 1 delivery person to service 100 package deliveries per day in a town.

• Let’s also assume each user has 1 package delivered per day, and that Amazon operates at breakeven (i.e. zero profit).

• If there is one Amazon user in this town, that user bears the entire cost of the 1 warehouse, 1 delivery van, and 1 delivery person.

• If there are 100 Amazon users in this town, the cost of the 1 warehouse, 1 delivery van, and 1 delivery person are spread across 100 users, and the cost per user is 1/100.

We’ve seen three dominant uses of tokens to date: gas tokens, governance tokens, and synthetic assets.

A gas token is a specific token chosen by a blockchain as the form of payment to process a transaction. ETH is the gas token of Ethereum, and SOL is the gas token of Solana. For example, when a user wants to transact on Ethereum, it must pay ETH in gas to do so. Gas tokens exist because blockchains are decentralized systems in which disparate entities are paid to perform specific functions for the blockchain. For example, miners and validators are rewarded tokens for correctly verifying transactions and slashed tokens for attempting to incorrectly process them. In addition to coordinating miners and validators on L1 networks, gas tokens will likely also apply to L2 sequencers and provers that aspire to decentralize in the future.

A governance token refers to a token used to manage a project. Typically, the aspects of the project that can be voted on are pre-determined. For example, when the UNI token launched to govern Uniswap v2, tokenholders were granted control over the governance process, treasury, protocol fee switch, uniswap.eth ENS, uniswap Default List, and SOCKS liquidity tokens. Governance tokens can be used to manage both core blockchains (e.g. Cosmos Hub or Arbitrum) and protocols built on blockchains (e.g. Uniswap or Compound). Governance tokens can also be used to govern a combination of properties regardless of whether the project is a core blockchain or a protocol – including treasuries (i.e. to invest or distribute it), fee switches (i.e. to turn it on and for which assets), and core protocol logic – as well as parameters – including fee rates (i.e. for LPs on a decentralized exchange) and take rates (i.e. to accrue to the protocol treasury).

A synthetic asset is simply a digital representation of something. It can refer to digitally native goods (e.g. digital art), digital representations of assets (e.g. stablecoins), and digital memberships (e.g. restaurants), to name a few. The vision for synthetic assets is to help bring internet scale markets to an asset that would otherwise be structurally constrained. For art and restaurants, the market is limited by geography; for stablecoins, the market is limited by complex legacy financial systems.

It’s clear that even in these early innings, a token doesn’t serve a single purpose like a share in a corporation does. A token is an unopinionated technology and what it does and does not do depends on what it was designed and programmed to do or not do.

While the above are three of the most prevalent uses for tokens today, we are simply scratching the surface of what this technology can do. If we paint a broad brush to say all tokens are [x], we’re missing the point and forgoing the opportunity for this technology to thrive in the ways it can be most valuable.

Views are my own and not investment advice. Haun Ventures may have previously held, currently hold, or will in the future hold tokens mentioned in this post. See https://www.haun.co/disclosures.