The State of Consumer Crypto

In what other market is “consumer” considered a small niche? Only in crypto. The journey towards mainstream adoption begins by creating experiences that people genuinely care about.

“We’re in a design moment for the industry.” - Deana Burke, Boys Club

It's time to revisit the core premise of crypto – the need for consumers to fundamentally engage with digital assets. Consumer experiences are what give digital assets their significance and foster emotional connections. The future of consumer crypto lies in crafting spaces that people want to belong to.

The call for more infrastructure can sometimes serve as a cop out. While there's always room for more rails, our primary need is for 'killer apps'. This doesn’t necessarily mean acquiring millions of users, but crafting meaningful experiences for niche audiences.

Friends with Benefits and Seed Club co-hosted FWB Fest 2023 and Eyewitness Live, a conference at the center of culture x crypto hosted at the Idyllwild School for the Arts in Idyllwild, CA. (Link to Livestream (Day 1) // Link to Livestream (Day 2)

How do we make something that people are really proud to be a part of?

• For crypto to truly resonate with consumers, it must transcend mere financial value. The construction of something meaningful commences with understanding their behavior and exploring how we can amplify that through a crypto use case.

• If we were to strip away the financial aspects of your product, would it still hold value for the user? This question is the true measure of intrinsic value, demanding the creation of products and experiences that resonate with consumers on a personal level.

• The brands that will prevail will be those that cultivate an emotional bond and utilize web3 to magnify existing consumer behavior or enable new behaviors rooted in human motivation and psychology.

• Emotional attachments foster trust. The most significant brand strategy one can adopt is to inspire “trust”. It forms the ultimate brand moat - trust your software.

• That said, Crypto is an always on, global casino. The industry has been built by speculation - Degens and crypto-natives are a tough crowd to please, and airdrop farmers do not make for good owners. Catering to the 99% of non-crypto natives calls for a different approach, one that includes simplifying interfaces, demystifying jargon, and bridging the gap between crypto services and existing digital habits.

• Storytelling and world-building are the most effective ways to attract consumers to your brand, inspiring them with a sense of belonging. The world around your endeavor doesn’t necessarily need to be directly monetizable from the get-go. Crypto experiences don't always have to revolve around finance. Worlds can be built collaboratively, with crypto serving as an incentive for joint world-building efforts. The birth of the ERC-20 token standard is a testament to this – Ethereum prioritized world-building by listening to Fabian Vogelsteller’s request in their Github page back in 2015.

What does web3 enable in consumer experiences? (not an exhaustive list)

1. Interactive co-creation: Consumers can directly impact future outcomes, which can be a major dopamine hit (the downside being that this also fuels speculation, but it forms the core of decentralization. Progressive decentralization is key, but more on this later.)

2. The power to incentivize people and transform an audience into a community (they are not the same thing). This can be achieved through content, games, social capital/status, and creating a healthy amount of friction - people engage with what they care about. The rules of human behavior and psychology are just as applicable in crypto.

Who is doing this? Blackbird Labs - “We believe the next great hospitality technology platform should connect restaurants and their customers directly, in meaningful and ongoing ways. We’ll partner with some of the world's best restaurants to bring these enduring relationships to life and we'll use cutting edge software to do it.”

Takeaways From Panel Discussions:

Users? In This Economy? A conversation on driving adoption in a bear market with Joey DeBruin, Backdrop; Brian Trunzo, Polygon; Soren Wrenn, Titles; & Isabel Gonzalez, POAP.

In consumer, you are competing for attention and getting people to spend time in your product. How does one win?

Hot Takes & Tactics For Consumer Founders

Tactics: Take a distribution first approach to gain attention - focus less on building durable apps that will be here 5-10 years from now. Think about cultivating consumer attention after you have the emotional attachment to convert an audience into a community (they are not the same thing).

• Build an audience first (this is critical and a fallacy of the current crypto market) Start by meeting your audience where they’re at (ex. Eth, or an EVM compatible L2, is the place to be for any consumer crypto product - the advantages are too strong to think about building elsewhere).

• Launch different products (this allows you experiment and better understand your user) and make it as easy as possible for users to experience the magic of your experience (ie. no/low gas fees, simple login, etc. The core tenets of acquisition and onboarding funnels are still true in web3).

• Double down on the ones that work - have an assumption about your core product loop and leverage insights from your power user base to understand behavior. INVEST in RE-ENGAGEMENT of users. Too many founders leave their current users to the wayside, they are the heartbeat of your product value.

Who is doing this*? Source is an AI-powered suite of creative tools specifically designed for remixing and publishing cryptomedia. Source aims to become the Adobe Creative Suite for web3 and a digital toolbox creators. Their vision is to reimagine how creators are monetized and rewarded for their work, addressing the challenges of attribution and incentivization in the creative space.* 

Who else is doing this?* Vessel is building an on-chain media aggregator for creators and brands. Vessel recognizes both the opportunities and risks that come with on-chain media – immense reach and broad discovery, but also narrative and brand fragmentation. By providing a platform that facilitates broad distribution while maintaining brand cohesiveness, Vessel offers an interesting solution to this dichotomy. This makes Vessel a promising player in the evolving landscape of on-chain media.*

Tactics: Think about owning a specific geography first - this gives you a compelling narrative and defensibility when you’re able to have a deep pulse on a specific market.

• Deep Understanding of Local Culture: Design products or services that align with local preferences and trends. Authentic branding can resonate deeply with the local audience, leading to higher engagement and adoption.

• Building Trust: Being a local or region-focused player can build trust among the initial users. Positive experiences can lead to organic growth, fuelled by word of mouth within the community.

• Regulatory Familiarity: Understanding local regulations, especially in crypto, can be a competitive advantage. It also reduces risks associated with non-compliance.

Who is doing this? Senspace is a digital goods brand founded by veterans of the Tokyo streetwear and hip-hop scene who know the market inside and out. What sets Senspace apart is their unique blend of street culture, digital goods, and blockchain technology. By leveraging their deep understanding of streetwear culture and digital trends, Senspace is able to create digital goods that resonate with a youthful, trend-savvy audience. Their use of blockchain technology further enhances the appeal of their goods, offering users verifiable ownership and scarcity.

Who else is doing this?* Slow Rodeo is a software and brand studio that's reinventing how brands are built. They focus on fostering deep community participation and ownership through NFTs and tokens - starting with the CPG industry. Slow Rodeo's unique approach lies in its emphasis on community involvement. By giving community members a stake in the brand through NFTs and tokens, Slow Rodeo creates a strong sense of collective ownership and engagement. This approach not only strengthens community bonds but also gives users a direct influence over the brand's direction.*

Tactics: Have an assumption on your core product loop and leverage insights from your power user base to understand behavior.

• Viral Use Cases: attention is fleeting, how you think about re-engagement of existing users is the key insight (in web2, Duolingo does this better than anyone). Especially for startups needing product cycles, showing engagement data can be a challenge, often making it a tough pitch to potential investors.

• Engaging Social Experiences: Casual games can curate rich social graphs. Dense engagements and interactions are indicators of authentic user experiences. As the saying goes, “Authentic engagement always finds a way.”

• Value in Simplicity and Learning: If a user walks away from your product feeling like they've learned something, it's usually a positive signal. The simpler the product or feature, the more likely it is to resonate.

• Artifact-Driven Access: People seek experiences where they feel they own something, but without the responsibilities that typically come with ownership. In the web3 space, artifacts can play a significant role in offering these tailored experiences.

Who is doing this?* Fini is a social product that utilizes ownable creatures to enrich experiences around data that consumers care about. What makes Fini interesting is its innovative use of gamification and personalization. By assigning personal creatures that interact with user data, Fini turns static data into dynamic, engaging experiences. This fresh approach brings a sense of fun and novelty to how users interact with their data, fostering deeper engagement.)* 

Who else is doing this?* Interface is building an on-chain social feed, allowing users to follow friends and view their on-chain activity in a clean mobile feed, as well as explore their constantly evolving on-chain identities. The interesting thing about Interface is how it turns blockchain transactions into a social experience. By providing a social media-like interface for on-chain activities, Interface makes blockchain interactions more accessible and familiar to everyday users. The fact that users are already checking it daily like Instagram suggests that Interface is successfully providing value in a novel social context.*

Is Everyone Building An Appchain Without Me: A Conversation with Base and Optimism (Jesse Pollack, Creator of Base) Kevin Ho (Optimism)

TL;DR

The long-term aim of L2 solutions, including Base, is to transform into a "superchain," where all roads eventually lead to Ethereum and offer a seamless, unified user experience. Attaining improved interoperability and transaction sequencing is key to fulfilling this vision, which, according to Pollack and Ho, might be closer than we think, approximately 2-3 years away rather than a decade.

• The founding of Base was driven by the desire to bring a massive user base on-chain and allow Coinbase to own end-to-end experiences from discovery to transaction to onchain behavior.

• The long tail of L2’s are ultimately working towards becoming a "superchain", where all roads lead towards ethereum and feel like one single experience. Improved interoperability and transaction sequencing are gateways to this vision - it’s a big one but closer than we think (not 10 years away, ~2-3 years).

• Founders who are considering launching appchains should think twice. Just because worldcoin did it, doesn’t mean you need to. (Note: Worldcoin’s launch clogged OP’s entire mainnet; ~1M users).

• Launching a chain is resource-intensive. Have an existing user base first, then consider how having your own appchain can allow you to capture more transaction volume second.

• Chains have a culture. Optimism generally attracts optimists (shocker!). Base generally attracts crypto-native builders who are more skewed towards financial empowerment (given the ethos of coinbase). Another example is Zora (launched an L2 appchain) has a deeply compelling brand reputation with creators.

• CCIP (Cross-Chain Interoperability Protocol) is pushing away layer zero and allowing for wallet to wallet communication (starting with USDC) in a much easier fashion. We’re seeing the technical complexities being abstracted away - this is where L2’s are winning.

• Base is launching through their “Onchain Summer” campaign - featuring one compelling onchain use case per day throughout the month of August. They’re collaborating with a combination of enterprise brands and early stage startups.

Got Money? A VC Panel with Gaby Goldberg, TCG Crypto, Ryan Y Yi, Coinbase Ventures, and Anthony Avedissian, Seed Club Ventures

TL;DR

In the current crypto market, deal volumes have dropped significantly, with VCs emphasizing profitability over sheer user numbers. Despite the market downturn, investments continue, with the emphasis on the genuine value and investibility of a product.

Market Sentiment:

• Overall, deal volume has gone down - VC’s are only seeing 1/3 of the number of deals seen in the bull market. Those who are actively investing have slowed their pacing.

• The dynamic has shifted towards revenue and profitability “What is the actual incentive or business model for your use case?”. Investors are waiting for the consumer business models that will define the market and rely on top tier founders to guide their thinking. That said, crypto VC is becoming more and more vertical specific - so investors are coming with a prepared mind related to specific markets and get to a "no" faster.

• From a macro perspective, there is consolidation happening behind the scenes (series B+ startups that raised during the bull run.)

  • If you’re selling B2B to other crypto companies, there’s only a handful that can actually afford to buy your product (ie. community tooling or selling to L1’s) pricing for this market can be very hard.

• Investors are seeing lots of perpetual bridge rounds / flat rounds to extend runway. If you’re a founder in this position, be precise in why you’re raising and what specific experiments you’re looking to test.

• Large funds ($1B+) investing in seed rounds are problematic for founders (even though it feels good to have big name funds). They’re either investing to have access to your next round or will forget about you if things don’t work out.

Shifts in Investment Decision-Making:

• On TAM: it’s more around the Depth of problem that you’re solving and willingness to pay instead of TAM.

• On traction: Bottom line - deals are still getting done. If you’re not getting funded, it’s because investors don’t believe you have any investible product.

• Web2.5 = traditional user growth metrics

• Web3 = all about LTV of users. Doesn’t need as many users to generate value. But be honest with who your users are.

Understanding the LP Dynamic:

• Consolidation for similar startups: which startup do you believe in the most in a specific sector? How are you helping them acquire other startups?

• Compelling use cases that resonate: does this use case actually benefit the narrative around crypto? Can the LP explain it to traditional investors and it makes sense?

Key Takeaways for Founders Current (or Considering) Raising:

• Hard truth #1: Deals are still getting done and investors are still deploying capital despite challenging market conditions. Too many projects that should not have received capital were able to raise in the bull market - that is now gone. If a startup isn't attracting funding, investors are not convinced about the investability of the product.

• Hard truth #2: Prioritize choosing the right investor who will provide long-term support over aiming for a high valuation. The true value of an investor goes beyond just their monetary contribution; strategic guidance, network access, and long-term commitment are crucial and worth optimizing for.

• Hard truth #3: Where you build matters. Understand the ecosystem and infrastructure in which you’re building on, focus on how that particular ecosystem enhances your use case. Too many founders don’t understand how to best leverage their ecosystem - a scrappy opportunity that takes hustle.

Tokenize Me: A conversation on token models for consumer adoption with Jess Sloss, Seed Club; Josh Cornelius, Seed Club; & Mike Deal, SuperRare

TL;DR

Token models should prioritize rewarding early adopters and maintaining transparency through community-aligned constitutions. While initial token launches might falter, it's vital to start with an MVP and adapt based on feedback. Data suggests a significant portion of airdrop recipients may sell, necessitating long-term strategies. SuperRare's token model exemplifies benefits by letting collectors stake on artists, merging social connection with financial speculation. Though token launches alone don't guarantee vast user acquisition, integrating tokens can enhance user experience by gamifying products and fostering value exchange.

Wen Token?

• Token models should consider rewarding early adopters, much like Uniswap, which distributed 70% of tokens to the community and 30% to insiders.

• Align the community around a constitution to explain the significance of the token.

• You likely will get your token launch wrong - that’s okay. Launch a Minimum Viable Product (MVP) and gauge community response.

• Note: based on the data 80-90% of airdrop holders might sell their tokens. Long-term strategies should be considered to counteract this.

• Timing is always a key question when it comes to token launch. Resist rushing this process and consider their existing cap table when designing a token model.

Token Models and Benefits: SuperRare Example

• SuperRare's model allows collectors to stake $rare on artists. When an artist makes a sale, a portion goes to a pool and is distributed to stakers. This model provides both social benefits (a feeling of connection) and financial benefits (speculation).

• This approach introduces the potential for co-ownership and allows collectors to diversify their portfolios - drawing parallels between onchain media and collecting artifacts to form social graphs.

Tokens as acquisition mechanisms:

• Tokens can be used as a mechanism to drive user acquisition. However, token launch alone isn't sufficient to attract massive users (e.g., 1M people). It's more effective to first get people to buy into your product. For instance, having a "collect" button on Spotify might attract more users.

• As your product grows, ensure there's a mechanism for the demand for your tokens to grow as well.

• Tokenizing consumer products may present challenges. However, tokens can make the user experience more fun and gamified, creating a connection to value and facilitating value exchange.

Final Thoughts:

The current landscape of consumer crypto is at a fascinating intersection, we’re not there yet, but we’re building. Use cases are emerging, value is being captured, and most importantly, people are having fun with web3-enabled experiences. Founders who are willing to adapt, experiment, and focus on truly resonating with their communities will shape the future of consumer crypto. If we succeed, web3 will fade into the background and we’ll just be talking about how we’re creating new consumer experiences.

Building in the consumer crypto space? I’d love to chat! DM me @JarrodBarnes on Twitter.