Mainstream Paradigms, Opportunities and Challenges of Web3 Consumer Applications

Recently, market sentiment has been sluggish. With the policy dividends failing to meet expectations and a series of celebrity Memecoins depleting the liquidity of the crypto speculation market, this wave of cryptocurrency speculation driven by macro tailwinds seems to be nearing its end. More and more investors and believers are beginning to contemplate the next value narrative for the Web3 industry, with Web3 consumer applications becoming the focal point of discussion. Only by introducing more mass-oriented applications can we bring true user adoption and sustainable business value to this overbuilt infrastructure ecosystem. This article will provide an overview of the mainstream paradigms of current Web3 consumer applications and explore their respective opportunities and challenges.

Definition of Web3 Consumer Applications

Web3 consumer applications refer to software applications designed for regular consumers that have Web3 characteristics, rather than those aimed at enterprise users. They can typically be categorized into more than a dozen major categories such as social, entertainment, tools, and lifestyle services. As the market matures, many new products will combine multiple features to seek differentiated selling points, but they can still be simply categorized according to their core selling points.

Three Main Paradigms of Web3 Consumer Applications

1. Optimize traditional applications by leveraging the technical characteristics of Web3 infrastructure.

This paradigm leverages the technical characteristics of Web3 infrastructure to enhance product competitive advantage or provide new services. This is mainly reflected in two aspects:

• Ultimate privacy protection and data sovereignty

Opportunity: The privacy track has always been the main theme of innovation in Web3 infrastructure, from asymmetric encryption to ZK, FHE, TEE, etc., aimed at creating a network environment that does not rely on third-party trust. This brings data sovereignty to users, allowing personal privacy information to be directly hosted on locally trusted devices.

Challenges: As a core selling point, the advantages in market competition are not obvious. On one hand, consumers' emphasis on privacy is based on the occurrence of large-scale privacy breaches, which can be effectively alleviated through improved regulations. On the other hand, overly emphasizing privacy protection may undermine mainstream business models, making it difficult to design sustainable business models.

• Low-cost global all-weather trusted execution environment

Opportunity Point: Numerous L1 and L2 provide developers with a new, global, and round-the-clock operational multi-party trusted program execution environment. This can effectively reduce trust costs and usage costs in businesses involving multi-party collaboration, especially when the strengths of the parties are balanced or when data is sensitive.

Challenges: Difficulties in application scenario exploration. The use of this execution environment can only bring significant benefits in services that involve multi-party collaboration, are independently operated, have balanced scales, and handle sensitive data, which is a rather demanding condition. Currently, it is mainly focused on the financial services sector.

2. Design new marketing strategies, user loyalty programs, or business models using cryptocurrency assets.

This paradigm aims to enhance the competitive advantage of products by introducing the high financial attributes of crypto assets. This is mainly reflected in three aspects:

• Reduce customer acquisition costs through token-based marketing activities

Opportunity: Tokens, with their high financial attributes and zero-cost creation, can significantly reduce the risks of early-stage projects. Compared to directly using funds to buy traffic, using tokens for user acquisition is more cost-effective.

Challenge: The cost of converting acquired seed users is extremely high, most of whom are cryptocurrency speculators who do not pay attention to the project itself. Moreover, as the model is widely applied, the marginal returns decrease, and the customer acquisition cost gradually increases.

• User loyalty program based on X to Earn

Opportunity Point: Utilize the financial attributes of Tokens to reduce retention and activation costs. Establish a user loyalty program based on Token rewards for predefined key user behaviors.

Challenge: The motivation for users to earn profits can shift their focus from product features to yield rates. A decline in yield rates can lead to a rapid loss of users, which is extremely damaging to products that rely on UGC.

• Directly monetize the financial attributes of tokens

Opportunity: Tokens bring a new business model, where projects sell coins directly for cash, avoiding the long cycles or high difficulties of traditional models.

Challenge: This is an unsustainable business model. After the project has entered a high growth phase, due to the lack of incremental capital inflow, the zero-sum game will put the interests of the project parties in opposition to those of the users, accelerating user loss. Without a robust cash flow, it can only rely on financing to obtain funds, falling into a dependence on the market environment.

3. Fully serve native Web3 users, addressing the unique pain points of this group.

This paradigm focuses on serving Web3 native users and can be divided into two categories:

• Construct new narratives, focusing on monetization designs around the untapped value elements of Web3 users, creating new asset classes.

Opportunity: Provide new speculative targets for Web3 users, allowing them to have pricing power over certain assets from the early stages of the project and gain monopoly profits.

Challenges: It relies heavily on team resources and requires the recognition and support of individuals or institutions that hold the "pricing power" of crypto assets. The pricing power of crypto assets dynamically shifts among different groups, necessitating a team with strong market sensitivity. Establishing cooperation with "price setters" usually entails significant costs.

• Provide new tool-based products to meet the unmet needs of Web3 users or to offer a better user experience.

Opportunity Point: This is the most promising paradigm for the future. As cryptocurrency becomes more popular, the user base for this demographic expands, creating possibilities for user segmentation. Focusing on real needs makes it easier to achieve PMF and establish a robust business model.

Challenges: Returning to the true needs of users. Although the development path is more robust, the construction cycle is longer. It is driven by demand rather than narrative, making PMF easy to verify, but early-stage large financing is difficult to obtain. It is challenging to maintain patience amidst the "token issuance" wealth myth.

These three paradigms are not completely independent; many projects will embody multiple characteristics at the same time. For teams looking to start a business in the Web3 consumer application space, it is necessary to comprehensively evaluate their own advantages and demands, and choose the most suitable paradigm.