Paradigms of Web3 Consumer Applications and Theoretical Considerations for Investment

Recently, Alliance DAO has garnered attention for successfully incubating Web3 consumer applications such as Pump.fun and Moonshot. This article will summarize Alliance DAO's investment philosophy regarding the Web3 consumer sector, and observe this sector to provide an overview of the current mainstream paradigms of Web3 consumer applications, the challenges they face, and the potential opportunities. Finally, it will conclude with reflections on the investment theory of Web3 consumer applications.

Alliance DAO's Incubation of the Web3 Consumer Track

Alliance DAO Accelerator has co-incubated or externally invested in 28 Web3 consumer applications, which can be roughly divided into 7 categories:

1. Life Style Category: Aimed at cultivating novel and healthy lifestyles for users through Web3 methods, such as StepN, Sleepagotchi, etc.

2. Games Category: Web3 games or GameFi, such as Axie Infinity, Genopets, etc.

3. Crypto Speculative: Related products that meet users' Crypto speculation needs, such as Pump Fun, Moonshot, etc.

4. SocialFi Category: Tokenizing users' influence on social media platforms to create new speculative projects, such as fantasy.top, 0xPPL, etc.

5. Creator Economy: Web3 content distribution platforms that provide new economic models for content creators, such as Koop, CreatorDAO, etc.

6. Financial category: Products that reduce users' costs of using and managing Crypto, such as Hana Network, P2P.me, etc.

7. Tools: Products that solve practical life problems for users, such as the Web3 map proto.

From the development trend of investment preferences, Alliance DAO has been investing in and incubating Consumer-type projects since 2021, focusing mainly on Games and creator economy projects in the first half of 2021-2023. In the second half of 2023 to 2024, its preference shifts towards Crypto speculation, SocialFi, and financial projects.

Alliance DAO's investment philosophy regarding the Web3 consumer sector mainly includes:

1. It is believed that the ecological infrastructure tools have become increasingly完善, and more application layers are needed to bring real value acquisition capabilities to the ecosystem.

2. The founding team should focus on PMF and avoid introducing tokens too early.

3. The target users of Web3 consumer applications can be divided according to their acceptance of Web3. On the left, non-Web3 regular users mainly reduce customer acquisition costs through "advertising tokens"; on the right, Web3 Native users focus on new assetization targets, bringing investment and speculation demands, or addressing the unique needs of native Web3 users.

4. The Solana ecosystem is more favorable for the success of consumer applications, due to reasons such as: a more active community, stronger ecological resource support, faster and lower-cost infrastructure, and higher product competitive barriers.

What are Web3 Consumer Applications

Web3 consumer applications refer to software applications aimed at ordinary consumers that have Web3 characteristics. According to App Store classifications, the entire consumer application track can be roughly divided into 10 categories:

1. Social
2. Lifestyle
3. Game
4. Efficiency
5. Entertainment
6. Education
7. Tools
8. News
9. Travel
10. Finance

Web3 Consumer Application Paradigms and Their Opportunities and Challenges

Based on the analysis of the investment philosophy of Alliance DAO and personal observations, there are three common paradigms of Web3 consumer applications:

1. Optimize certain issues existing in traditional consumer applications by leveraging the technical characteristics of Web3 infrastructure:

• Ultimate privacy protection and data sovereignty: Opportunities: The privacy track has always been the main theme of innovation in Web3 infrastructure. Starting from the initial asymmetric encryption algorithm identity verification system, it has gradually integrated numerous hardware and software technologies. This brings users data sovereignty, allowing personal privacy information to be directly hosted on locally trusted hardware and software devices.

Difficulty: After market verification, using this as a core selling point does not have a significant advantage in market competition. There are two reasons: first, consumers' focus on privacy is based on large-scale privacy breaches and infringement incidents, but this can be effectively alleviated by improving laws and regulations; second, the current majority of consumers' business models are built on extracting value from big data, and overemphasizing privacy protection may undermine mainstream business models.

• Low-cost global all-weather trusted execution environment: Opportunities: Numerous L1 and L2 provide application developers with a new, global, and around-the-clock multi-party trusted program execution environment. This can effectively reduce the related costs of developing such services, such as stablecoins.

Difficulty: It is relatively difficult to explore application scenarios. The execution environment only brings benefits when there is multi-party collaboration in a certain service, the relevant entities are independent of each other, are in balance in scale, and the data involved is particularly sensitive. Currently, such application scenarios are mostly concentrated in the financial services sector.

2. Utilize encrypted assets to design new marketing strategies, user loyalty programs, or business models:

• Reduce customer acquisition costs through token-based marketing activities such as Airdrops: Opportunity: Tokens, with their high financial attributes and being assets created out of thin air, can significantly reduce the risks of early-stage projects. There are quite a few projects adopting this paradigm, such as most TON ecosystem projects, mini-games, etc.

Challenges: The main issues are twofold: first, most of the users attracted by this scheme are cryptocurrency speculators, leading to extremely high conversion costs later; second, as this model is applied widely, the marginal returns from customer acquisition through Airdrop are diminishing.

• User loyalty program based on X to Earn: Opportunity: Retention and activation are concerns for consumer applications. Utilizing the financial attributes of tokens to reduce retention and activation costs has become the choice for most projects of this kind.

Difficulty: Relying on users' motivation to earn profits will shift their focus from the product's functionality to the yield. If the yield is based on the price of the tokens they issue, it will put pressure on the project team regarding market value management.

• Directly monetize the financial attributes of tokens: Opportunity point: Tokens bring a new business model, which is to directly monetize the financial attributes of tokens, that is, projects directly sell coins to cash out.

Difficulty: This is an unsustainable business model. After the project has passed the early high-growth stage, due to a lack of incremental capital inflow, this zero-sum game model will inevitably place the interests of the project party in opposition to those of the users, accelerating user attrition.

3. Fully serve the native Web3 users and address the unique pain points of this group of users:

• Construct new narratives, focusing on the monetization design of certain untapped value elements of Web3 native users, creating new asset classes: Opportunity: By providing new speculative targets for Web3 native users, such as the SocialFi track (, the benefit lies in having pricing power over a certain asset at the initial stage of the project, thus gaining monopoly profits.

Challenge: It relies heavily on team resources, specifically whether it can gain recognition and support from individuals or institutions that possess strong influence among Web3 native users or have "pricing power" over crypto assets.

• By providing new tool-based products to serve the unmet needs of Web3 native users in the market participation process. Or to provide better and more convenient products for this group of users from the user experience perspective: Opportunity: As cryptocurrencies gradually become more popular, the overall user base in this segment will gradually expand, bringing possibilities for user segmentation. Moreover, by focusing on the real needs of a specific user group, such products often find it easier to achieve Product-Market Fit (PMF), thereby establishing a more robust business model.

Challenge: Although the product development path is more robust due to a return to genuine user needs, the construction cycle is longer than that of other paradigm projects. Furthermore, since such projects are driven by specific needs rather than narrative, the product-market fit (PMF) is relatively easy to verify, and substantial funding is often unattainable in the early stages of the project.

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Reflections on the Investment Theory of Web3 Consumer Applications

1. How to go beyond the speculation cycle is the primary concern for Web3 consumer applications.

The development path of Friend.Tech gives us great inspiration. The cumulative Protocol Fee has reached $24,313,188, and the total number of users ) Trader ( has reached 918,888, showing outstanding performance. However, the current development is facing significant challenges, which are multifaceted. Firstly, in product design, introducing Bonding Curve has brought speculative attributes to social applications, attracting a large number of users in the short term through wealth effects. However, in the medium to long term, this approach raises the entry threshold for users to join the community, which contradicts the practice of most current Web3 projects or KOLs relying on public domain traffic to establish influence. Additionally, overly bundling tokens with product utility has led to too many speculative users in Web3, causing users to detach from the focus on product usability.

Therefore, for most Web3 consumer applications, after accumulating a large number of users, it is necessary to carefully consider how to find PMF, maintain user engagement, help the project surpass the speculation cycle, and build a sustainable business model. Only by effectively addressing these issues can Web3 consumer applications achieve true Mass Adoption.

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2. How to evaluate Web3 consumer applications?

Mainly approach from two aspects:

• Product operation data analysis:

  • User data: active user count, user growth rate, user retention rate, etc.
  • Conversion data: AUM and User spend, etc.

• Judgment on the team:

  • Technical Strength
  • Market Sensitivity and Openness
  • Team Resources

3. How to Define a Successful Web3 Consumer Application

From an investor's perspective, is the success of Web3 consumer applications driven by revenue or by token prices? The two are interconnected and depend on the investment horizon. Short-term investments focus more on token prices, while long-term value investments pay more attention to revenue performance and the sustainability of the revenue structure.

4. "Applying the Factory Pattern" may be a more deterministic business strategy for Web3 consumer applications.

Referring to the development of the Web2 industry in China, ByteDance has developed many successful consumer applications. Its business strategy is to continuously experiment and develop a large number of different types of products, allowing the market to select a few successful directions and continue to invest resources to expand the business. The key to the success of this strategy is the accumulation of a large user base, which reduces the cost of trial and error. This experience can be applied to the Web3 industry.

5. What are the characteristics of the next successful Web3 consumer applications?

Three possible paradigms:

• By leveraging the product's fun aspects, first attract crypto KOLs to adopt it, then use the KOLs' influence to bring in fans and complete the cold start. For example, Kaito.

• Start from the real needs of Web3 users and directly win the market through product strength, such as Polymarket, Chomp, etc.

• Business model innovation. For example, Grass utilizes users' idle computing resources to help them find value capture sources in fields such as artificial intelligence, and monetizes this with tokens.

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6. Which categories of projects are more likely to be the first Web3 consumer applications to find PMF in the crypto industry?

• Web3 social applications: Discovering sustainable business models and stronger user retention rates through assetization or niche market demand.

• On-chain trading tool applications: As MEME continues to develop, investors are increasingly focused on on-chain trading. Provide users with differentiated on-chain trading tools or investment strategies.

• Payment applications: With the passage of legislation related to payment stablecoins, regulatory pressure has been alleviated. Competitive barriers are being built in scenarios such as cross-border payments and idle fund management.

• DeFi: With the continuous improvement of infrastructure, the performance limitations of decentralized applications will be broken through. In financial application scenarios that require high execution efficiency, such as high-frequency trading, DeFi will deliver performance comparable to that of CeFi products.

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