Mainstream Paradigms, Opportunities, and Challenges of Web3 Consumer Applications

The recent market sentiment has been sluggish, as the positive effects of policies gradually fade and a series of celebrity-related cryptocurrency projects have drained the market liquidity. This wave of cryptocurrency speculation driven by macro benefits seems to be nearing its end. More and more investors and practitioners are beginning to ponder the next value narrative of the Web3 industry, with the consumer application track in Web3 becoming the focal point of many discussions. Only with more applications aimed at ordinary users and achieving mass adoption can true user value and sustainable business models be brought to this overbuilt infrastructure ecosystem. This article will review the mainstream paradigms of current Web3 consumer applications and discuss the opportunities and challenges they face.

Definition of Web3 Consumer Applications

Web3 consumer applications refer to software applications aimed at ordinary users that possess Web3 characteristics. The target users of these applications are the majority of ordinary consumers, rather than enterprise-level users. The entire consumer application space can generally be divided into the following 10 categories: social, communication, entertainment, lifestyle services, tools, education, health care, finance, gaming, and news information. As the market matures, many new products seek to find differentiated selling points and may combine multiple features to a certain extent, but we can still categorize them simply according to their core selling points.

The Main Paradigms of Current Web3 Consumer Applications and Their Opportunities and Challenges

Currently, there are three common paradigms of Web3 consumer applications:

1. Optimize the issues of traditional consumer applications by utilizing the technical features of Web3 infrastructure.

This paradigm aims to leverage the technical characteristics of Web3 infrastructure to enhance product competitive advantages 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 the initial asymmetric encryption to the integration of technologies like ZK, FHE, and TEE, the goal is to create a network environment that completely does not rely on third-party trust, providing users with data sovereignty. Personal privacy information can be directly hosted on local trusted devices, avoiding privacy leaks. Many projects tout themselves as decentralized social media, AI large models, video websites, etc., all belong to this category.

Challenges: After market validation, using privacy protection as a core selling point has not shown significant advantages. On one hand, consumers' emphasis on privacy requires large-scale privacy infringement incidents to occur, and improving regulations can effectively alleviate this issue. On the other hand, overly emphasizing privacy protection may undermine mainstream business models based on big data, making it difficult to design sustainable profit models.

Low-cost global all-weather trusted execution environment

Opportunity: Numerous blockchains provide application developers with a global, always-on, multi-party trusted program execution environment. This can effectively reduce the trust costs in business scenarios involving multi-party collaboration where all parties have equal strength and the data is sensitive, such as cross-border payments. Stablecoins are a typical example of such applications.

Challenges: Although it is competitive from the perspective of cost reduction and efficiency improvement, its applicable scenarios are relatively limited. It can only bring significant benefits when used in an execution environment under conditions of multi-party collaboration, independence, balanced scale, and data sensitivity, which are quite stringent conditions. Currently, such application scenarios are mainly concentrated in the financial services sector.

2. Design new marketing strategies, user loyalty programs, or business models using crypto 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 campaigns

Opportunities: For early-stage projects, how to acquire customers at a low cost is a key issue. Capturing users with tokens created at zero cost, such as airdrops and other activities, is more cost-effective compared to directly buying traffic with funds. Many projects adopt this approach, such as most TON ecosystem projects, mini-games, etc.

Challenges: There are mainly two issues. First, most of these users are cryptocurrency speculators, who do not pay much attention to the project itself, resulting in very high conversion costs in the later stages, and potentially leading to misjudgments about the product's market fit. Second, as this model becomes more widespread, the marginal benefits decrease, and the customer acquisition costs gradually rise.

User Loyalty Program Based on "X to Earn" Model

Opportunity Point: Retention and activation is another major challenge for consumer applications. Utilizing the financial attributes of tokens to reward predefined key user behaviors can reduce the cost of retention and activation. The "X to Earn" model is a typical example.

Challenges: Relying on yield incentives can shift users' focus from product functionality to yield rates. Once yields decline, users quickly churn. If yields are based on the price of their own tokens, it can create market cap management pressure for the project team, and during bear markets, they have to bear high maintenance costs.

Directly monetize the financial attributes of tokens

Opportunity: Compared to traditional application traffic monetization or payment models, directly selling tokens for cash provides a new business model for projects.

Challenge: This is an unsustainable model. After the early high-growth phase of project development, due to the lack of incremental capital inflow, the zero-sum game will inevitably put the interests of the project party in opposition to those of the users, accelerating user attrition. In the long term, lacking healthy cash flow, the project can only rely on financing to obtain funds, falling into a predicament of dependence on the market environment.

3. Fully serve Web3 native users, addressing their unique pain points.

This paradigm focuses on serving the native user base of Web3, which can be divided into two categories:

Construct new narratives, designing new assets around the untapped value elements of Web3 users.

Opportunity: Provide new speculative targets for Web3 native users ( such as the social finance track ), having pricing power of certain assets at the early stage of the project, thus obtaining monopoly profits. This requires intense competition to achieve in traditional industries.

Challenges: Heavily reliant on team resources, it is necessary to gain the support of key individuals or institutions that possess "pricing power" in crypto assets. As the market develops, pricing power dynamically shifts among different groups, requiring the team to have a strong market sensitivity. Additionally, competition for the preferences of "price setters" among all other crypto asset creators is exceptionally fierce.

Provide new tools to optimize the experience of Web3 users participating in the market

Opportunities: This could be the most promising paradigm for the future. As cryptocurrencies become more popular and the Web3 user base expands, there is potential for user segmentation. By focusing on the real needs of specific user groups, it becomes easier to achieve product-market fit and establish a healthy business model, such as trading analysis platforms, trading bots, information platforms, etc.

Challenge: Due to a return to genuine demand, the product development path, although healthier, has a longer construction cycle. Projects that are demand-driven rather than narrative-driven often struggle to secure large financing in the early stages. Maintaining patience and staying true to one's original intentions in the complex cryptocurrency market is a significant challenge.

These three paradigms are not completely independent; many projects may simultaneously exhibit multiple characteristics. For practitioners who wish to start a business in the Web3 consumer application track, it is crucial to comprehensively assess their own advantages and demands, and choose the most suitable paradigm.