The promise of Web3, an internet built on blockchains and cryptocurrencies that aims to be more equitable, has hit a roadblock: user retention. Web3 teams have been following a familiar script that involves launching projects, attracting new users with the promise of crypto token rewards, and creating an incentive mechanism that attracts "tourists" and bots looking to farm tokens, before they inevitably move on. "You generally see a lot of activity before the tokens are airdropped, and then afterwards it just dies as people move on to the next new thing," said Evgeny Gaevoy, the founder and chief executive officer of market making firm Wintermute, speaking on the sidelines of a recent crypto event in Singapore. Take the example of Ethereum layer-2 project Blast. Its weekly active users peaked at 570,000 when it launched its airdrop in late June, but the number has since dropped to just 78,000, according to Token Terminal data. A CoinMetrics report noted that airdrops of tokens distributed for protocol adoption are often liquidated quickly by recipients. While initially lucrative, most airdropped tokens depreciate long-term, with some exceptions like the memecoin BONK. In many cases, the tokenomics itself has become the product, or the user has become the product, leading to a slowdown in the launch of genuinely useful applications, according to Urvit Goel, vice president and head of global business development at Optimism Unlimited, an a16z-backed blockchain firm. Goel said that tokenomics should complement the core product, not replace it. "The best teams recognize that the priority should be developing a product with real user adoption and engagement," he said. "Tokenomics and blockchain features can then be layered on top to enhance the user experience -- for example, enabling cheaper user acquisition, better payment rails, or global coverage from day one." Paraphrasing the late Steve Jobs, Allen Ng, chief executive of web3 focused venture firm Everest Ventures Group, said that teams should start with a cohesive vision and user experience they want to deliver, and then work backwards to see what technology best fits that vision. "A lot of amazing technology has been built, but the builders and investors have no clear path on how to create an adoption flywheel," he added. |
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