Tier List of Web 3's Value Propositions
Assessing the attractiveness from everyday user's POV & understanding what it takes to reach mass adoption
Despite significant advancements since 2018, Web 3 is still considerably far from mass adoption and remains a niche community with less than 5% of global Internet users. This raises a critical question:
If Web 3 and the blockchain are as transformative and remarkable as the crypto-native folks claim, why hasn’t it achieved broader acceptance?
“UI/UX and onboarding is still a barrier!” Yes, that may have been true in the past, but we’ve made great progress in abstracting complexities with smart contracts and embedded wallets. In the first place, such complexities wouldn’t have been much of a problem if the fundamental offerings resonated with the majority of users. UI/UX didn’t stop you and me from getting into Web 3.
Perhaps the answer we’ve all been avoiding is that Web 3’s value proposition doesn’t resonate with most users and that we still have not achieved product-market fit today.
This analysis aims to delve into what truly drives the everyday user by assessing the appeal of Web 3's various value propositions and highlighting key focus areas for projects seeking to widen their user base.
Setting the Context
For clarity, this discussion is not about the necessity or superiority of decentralization and the blockchain. Instead, it seeks to bridge the gap between Web 3 builders’ and investors’ perceived desires of users and their actual needs, shedding light on what it takes to make Web 3 more universally appealing.
Here’s an overview of my tier assignment. You may use my template and create your own here!
Self-Sovereignty – B
Self-sovereignty in Web 3 represents a pivotal shift in digital autonomy. This concept grants individuals complete control over their digital identities, assets, and data, bypassing traditional central authorities. Bitcoin, emerging from the 2008 financial crisis, embodies this ethos, offering unparalleled control over digital transactions without central oversight
Why it’s attractive:
Declining trust in businesses, institutions, and governments to do what is right:
There has been a decline in public trust in traditional institutions in 2023, as highlighted by Edelman’s Trust Barometer report and Pew Research Center’s findings. This decline in confidence, particularly stark in governmental trust, which hovers around 50%, makes the blockchain's promise of self-sovereignty increasingly relevant and appealing. It resonates with the growing public desire for greater control and transparency, offering a viable alternative in an era marked by skepticism toward traditional structures
Why it didn’t rank higher:
Perceived instability and risk:
Despite its potential, the decentralized blockchain ecosystem is often viewed as volatile and risky by those outside the crypto sphere. The perception of Web 3 as a 'Wild West' environment, coupled with high-profile security breaches, makes it an unconvincing alternative for the average user today - cryptocurrencies and digital assets are the least trusted within the financial services industry, dropping to 36% while banks rose to its all-time highs of 63%
Insufficient urgency for change:
While self-sovereignty holds theoretical appeal, it often lacks the urgency required for mass adoption. Many users don’t perceive a compelling need to transition to decentralized systems, as the benefits of control and privacy don’t always yield direct or noticeable daily improvements. Moreover, the recent dip in trust levels is part of a broader trend of increasing confidence in established systems. It’s typically negative experiences with centralized systems — such as privacy violations or asset control issues — that drive users toward decentralized alternatives
Testament to this is the growth of DEX to CEX spot trade volume ratio. The decline since January 2022 was only reversed after the FTX implosion in November 2022. This event highlighted the importance of self-sovereignty, prompting traders to shift towards decentralized exchanges. Consequently, DEX trading volumes surged, hitting record highs by May 2023.
Note for projects:
Targeted Go-to-Market Approach
In regions like South Korea, Japan, Argentina, U.S., and more, Web 3 projects will likely encounter reduced onboarding friction, as users disillusioned with conventional systems are more open to alternative solutions. Unfortunately, there are no overlaps with countries with high/rising trust in cryptocurrencies and digital assets, such as China, India, Thailand, Indonesia, and others, though it would have been ideal. Regardless, the key to success in any market lies in delivering a superior product or experience, emphasizing more than just the allure of self-sovereignty
Verifiable Provenance and Trustlessness – B
Web 3's verifiable provenance and trustlessness collectively enhance transparency and reliability, offering an alternative to today's often opaque systems.
Provenance, enhanced by the transparency of the blockchain, enables users to track the lifecycle of assets and data –from their origin to present status. For example, NFTs represent unique digital or tokenized physical assets, with each token's blockchain entry detailing its creation, ownership, and transaction history. This feature is crucial for verifying authenticity and ownership in markets like digital art, where an NFT’s comprehensive, verifiable history can significantly influence its value and appeal.
Trustlessness, supported by blockchain’s open-source nature and immutability, removes the need for intermediaries, ensuring secure, direct interactions. In this system, code acts as law. For example, in a DeFi lending platform, users lend cryptocurrency and earn interest through smart contracts. These contracts autonomously manage terms and liquidation thresholds, negating the need for banks. Here, trust is placed not in people or institutions but in the transparent, verifiable blockchain code
Why it’s attractive:
Societal distrust and the need for verifiability: In a world where distrust is prevalent, Web 3 empowers users to (1) independently verify claims, (2) identify and avoid systemic risks through monitoring, and (3) execute transactions without depending on mutual trust or centralized intermediaries.
Studies reveal that 60% of people withhold trust until proven otherwise
Less than half view traditional institutions (government, media, business, and NGOs) as sources of trustworthy information, with governments and media being the least trusted
Globally, financial services are among the least trusted sectors, and there’s a decreasing trust in traditional institutions to do what is right – with government and media sitting at a mere 50%
The need for transparency is also apparent in consumer behavior; 86% of people believe that transparency in business is essential, and 73% were willing to pay more for goods and services from more transparent brands
Why it didn’t rank higher:
Perceived inadequacy as an alternative system:
In financial services, where trust is comparatively low, the principle of trustlessness in cryptocurrencies is critical. However, cryptocurrencies and digital assets, built on trustlessness, ironically have lower trust ratings (36%) than traditional banks (63%). This discrepancy indicates a challenge in the perception and acceptance of the Web 3 space, particularly in the financial sector.
Blockchain efficiently verifies on-chain data but falls short in validating off-chain data, which remains trust-dependent. Therefore, they are unable to completely address trust issues in media where it’s most needed
While users demand more transparency, they are willing to trust business claims, evidenced by businesses being the most trusted institutions with a trust rating of 62%. This indicates that while blockchain-level verification may be beneficial, they aren't critical in user decision-making
Secondary importance in decision-making:
In user decision-making, users often prioritize how well their immediate needs are met – such as ease of use and asset availability – over provenance and trustlessness. This preference is reinforced by a 'if it isn't broken, don't fix it' approach, leading users to explore decentralized options like those offering provenance and trustlessness only when existing platforms fail to provide necessary transparency or security – which was exemplified by the DEX to CEX data shared above.
Note for projects:
Strategic approach to target markets and focus on building superior products and experience
Similar to self-sovereignty, verifiable provenance and trustlessness are not the main driving factors for most users. Projects should aim at markets with inherent skepticism towards traditional systems and focus on delivering superior products and experiences to truly captivate users.
Community Governance – C
Community governance in Web 3 entails the self-management of networks or platforms by their communities, replacing traditional centralized decision-makers. This model typically involves community-driven decision-making through voting, directly influencing the network’s direction and policies.
For example, BitDAO, the largest DAO with the treasury size of $2.16 billion, successfully concluded its proposal with 100% approval on September to allocate over $60 million of its treasury assets to enhance liquidity for applications built on Mantle.
Why it’s attractive:
Community empowerment:
Echoing the trend of declining trust in centralized institutions, community governance stands out for its empowerment of users. It caters to the increasing demand for transparency and control, especially among those dissatisfied with top-down models. This approach fosters a sense of ownership and democratic participation, appealing to those who advocate for egalitarian and collaborative management.
Why it didn’t rank higher:
Tendency to free-ride:
Despite its theoretical appeal, community governance often sees limited practical engagement. Drawing from Mancur Olson’s 1971 research and supported by Easterbrook and Fischel’s 1991 findings, the tendency of users to avoid active participation — the “free-rider” problem — remains a significant issue even today. This phenomenon is characterized by a preference among most members to benefit from the collective’s efforts without contributing themselves, particularly in larger groups.
Poor voter turnout rate of Web 3 governance proposals exemplifies this. Across 50 DAOs & 4,936 voting activities, the mean voter turnout rate is 1.77%, with the median even lower at 0.10%. While such poor turnout rates might be attributable to delegated votes, it is still a testament to the general disinterest in active participation.
Notes for projects:
Progressive decentralization:
Progressive decentralization is key for a project’s stable growth and strategic development. Beginning with centralized control ensures clear direction and managed growth. This approach facilitates strategic planning in the early stages and a smooth transition to community governance later, mitigating risks and enabling thoughtful scaling. The contrast between Treasure and Loot exemplifies the advantages of progressive over immediate decentralization
Strategic Incentivization in Governance:
Effective governance incentives should target the right contributors, not just broad participation. Focus on incentivizing those with essential knowledge, experience, or investment in the project. Tailored rewards, recognition, and access to key decision-making processes can attract quality participation, leading to more informed and effective governance. Builders may refer to a16z’s incentivization guide, and Axie Infinity’s plan.
Permissionless & Composable – B
Permissionless systems in Web 3 allow anyone to participate without the need for authorization from a governing body. For example, anyone can create a token and create a globally accessible market to trade it, and anyone can have access to financial services.
Composability allows different components within the blockchain ecosystem to interact and integrate seamlessly with one another. This concept allows for the creation of complex systems where applications, protocols, and assets can be interconnected and built upon, much like Lego blocks. An example of this is DeFi, where various protocols for lending, borrowing, and trading can be combined to create new financial products.
Why it’s attractive:
Enhanced access to services and markets:
Permissionless systems drastically broaden access to a range of services and markets, previously limited by geographic or institutional barriers. This open-access model enables a global user base to engage with innovative applications and financial tools, democratizing opportunities across diverse sectors
No lock-ins:
In a permissionless environment, users enjoy the freedom of not being tied to any single provider or platform. This absence of lock-in effects empowers users to seamlessly switch services or platforms according to their preferences and needs, fostering a competitive and user-centric ecosystem.
Why it didn’t rank higher:
Accessibility not key issue:
Most users, especially those in developed countries, already have access to the services or markets they need. The barrier to enhancing access is not in the technology nor ethos but government regulation.
Not entirely novel:
Web 2 already offers a degree of composability through APIs. Thus, the concept, though more advanced in Web 3, is not entirely novel to users.
Focus on end results over technology:
For most end users, the primary concern is the utility and outcome of a feature, rather than the underlying technology or method used to achieve it. Users are generally more interested in the direct benefits they receive, such as improved functionality, ease of use, and enhanced user experience. Whether these benefits are derived from self-built features or through the composability of Web 3 is often of secondary importance to them.
Note for projects:
Focus on broad and deep integrations:
For Web 3 projects, success in composability heavily relies on securing numerous, rich integrations, in which the asset or data may be useful in. Achieving this requires clear, accessible documentation, a proactive business development and developer relations team, and potentially an incentive program to encourage and facilitate these crucial integrations
Building user loyalty in a non-siloed environment:
With Web 3's emphasis on open gardens rather than silos, users have more choices and are less confined to a single platform. This increased freedom makes user retention more challenging. The open environment necessitates building a moat. This could involve offering exclusive features, superior user experience that are not easily replicable by competitors, or the next value proposition, incentives.
Incentives – S
Incentives in Web 3, typically involving financial rewards such as tokens, play a pivotal role in motivating participation, contribution, and positive behavior in the ecosystem. These incentives often take the form of airdrops, where protocols and platforms distribute tokens to users who engage with their services.
For example, Blur's airdrop program was instrumental in its rise as a leading NFT marketplace, surpassing OpenSea or was also found to successful encourage governance participation in Optimism’s case
Why it’s attractive:
Reward for participation:
Unlike Web 2, where user contributions mainly profit platform owners, Web 3 directly rewards users for their participation. This model of receiving tangible rewards, such as tokens, for activities like content creation or platform engagement significantly boosts user motivation. It's an attractive shift that recognizes and compensates users' contributions, fostering a sense of ownership and aligning their interests with the platform's success. For users, this not only means fair recognition of their input but also an opportunity to be active stakeholders in the digital spaces they inhabit
There really isn’t much to debate about the allure of incentives as a value proposition, hence the S grading
Note for projects:
Attractiveness and sustainability:
The success of incentive programs hinges on their perceived value and sustainability. Projects must carefully design these mechanisms to ensure long-term engagement and avoid short-term, incentive-driven spikes that don’t necessarily translate into lasting loyalty or platform growth.
To guide this process, builders can draw insights from my piece on Friend.Tech’s airdrop model, Variant's "Progressive Ownership" token model, Rabbithole's analysis of airdrop history and future trends, and Decentralized.co's insights on user retention, underpinned by TokenTerminal’s comprehensive dataset on over 150 protocols’ incentive programs.
Incentives are not magical panaceas:
Incentives in Web 3 are not cure-alls; their effectiveness is limited without a solid product at the core. Like marketing spend, incentives draw initial interest, but it's the product quality that ensures lasting user retention and platform success. Without a compelling product, incentives merely drain resources, failing to translate initial engagement into enduring loyalty
Unlocking New Revenue Streams – A
In Web 3, new revenue streams emerge through the democratization and innovation enabled by blockchain technology
A prime example is NFTs, which have revolutionized how artists and creators monetize their work. Unlike traditional one-time sales, NFTs facilitate ongoing revenue through royalties on digital art and creations. It is estimated that over $1.8 billion of royalties have been paid out so far.
Why it’s attractive:
Financial empowerment and increased income potential:
The ability to unlock diverse revenue streams is particularly attractive in today’s economic climate, characterized by rising living costs and job insecurity. This model offers financial empowerment, allowing individuals to monetize their talents or contributions independently, reducing reliance on centralized systems. It provides a degree of financial stability and autonomy, enabling people to sustain their livelihoods more securely
Why it didn’t rank higher:
Challenges in accessibility and adoption:
While the financial aspect is relatively similar to incentives, the difference between the two is that establishing new revenue streams typically necessitates a foundational creation, business development, and a higher investment of time and resources, which may be out of reach for some. For example, while NFT royalties offer a recurring income, they require the creator to produce something valuable and in demand first. Such prerequisites may restrict the ability of a broader audience to capitalize on these opportunities, thus the grade of 'A' instead of 'S'.
Note for projects:
Balancing innovation with accessibility:
Projects venturing into this space must recognize the balance between innovation and accessibility. Strategies to lower entry barriers and educate potential users about these new opportunities will be crucial in maximizing the impact and reach of these novel revenue streams
Clear explanation of value and longevity:
The challenge for Web 3 projects, as exemplified by Axie Infinity, StepN and others, lies in proving not just the immediate attractiveness but also the long-term sustainability of new revenue streams. To maintain user trust and investment, projects must clearly articulate their economic viability and strategies to avoid pitfalls like market saturation or value depreciation that can arise from short-term profitability models
Equitability and Lower Take Rates – B
In the Web 3 paradigm, equitability signifies a more balanced economic sharing model, where all ecosystem contributors benefit from their contributions, contrasting sharply with Web 2's disproportionate profit distribution. Additionally, lower take rates ensure that users retain a greater portion of their earnings, as blockchain technology streamlines transactions by reducing or eliminating intermediary fees.
For example, Web 3 payment platforms utilizing the blockchain significantly reduce or eliminate bank fees, directly benefiting users by increasing the value retained from their transactions
Why it’s attractive:
Fairer earnings: The promise of equitability in Web 3 enhances income potential for contributors by ensuring they receive a fairer slice of the economic pie, a marked departure from the traditional model where intermediaries capture most of the value
Cost savings: The reduction in take rates directly benefits users' finances, particularly for those engaging in high-volume transactions, where even marginal fee reductions can accumulate significant saving
Why it didn’t rank higher:
Not the primary deciding factor in most cases:
Equitability and lower take rates, despite their appeal, often aren't the primary deciding factors for users choosing platforms. For example, creators usually prioritize platforms with higher exposure, even if it means higher fees. Moreover, these benefits are increasingly available on non-blockchain platforms as well, lessening their uniqueness. The actual effectiveness of equitability and reduced fees is only significant when emerging platforms achieve parity with their well-established rivals in other vital areas, a feat that remains challenging and contributes to a 'B' grade
This is evident as new Web 3 platforms struggle to compete with established ones like OnlyFans in user reach, despite offering better financial conditions, or how X2Y2 and Looksrare failed to overthrow OpenSea despite offering lower take rates when they first launched
Note for projects:
Market Differentiation is Crucial: While equitability and lower take rates are attractive features, they are not unique selling propositions on their own. Projects must combine these aspects with other differentiators, such as unique technology, user experience, or community engagement strategies to onboard users. This holistic approach can make a platform more appealing and stand out in a crowded market
Articulating blockchain’s role: Projects should succinctly articulate how blockchain underpins equitability and cost-efficiency, highlighting its role in fair revenue sharing and reducing intermediary fees. Clarifying blockchain's contribution to the sustainability and profitability of these models is key to alleviating user skepticism about their long-term viability
Speculation – A
Speculation primarily involves the trading or investment in digital assets and cryptocurrencies, driven by expectations of future value and market trends
The blockchain and its permissionless nature has democratized the creation of financial markets, wherein anyone can create and trade tokens. This innovation extends beyond accessibility, significantly diversifying the range of speculatable assets. Notably, NFTs have enabled the tokenization of varied assets such as images, videos, and exclusive access rights, transforming them into tradable digital assets. This evolution opens up novel investment avenues in previously untapped digital domains
Why it’s attractive:
High reward potential:
The allure of speculation in Web 3 lies in the possibility of substantial returns, coupled with the excitement it entails. This aspect resonates with the increasing popularity of high-risk, high-reward activities and its associated thrill, as evidenced by the rise of online gambling, which is found to have conceptual overlap and strong empirical relationship with speculation
Why it didn’t rank higher:
Volatility as a deterrent:
While speculation's high volatility can offer substantial rewards, it also serves as a double-edged sword, potentially deterring more risk-averse individuals. This intense fluctuation in value and uncertainty can be off-putting to those seeking stability in their investments. Furthermore, speculative activities that lack solid, real-world use-cases have contributed to Web 3's reputation as a 'Wild West' environment. This perception, fueled by speculative bubbles devoid of practical applications, may hinder wider acceptance and adoption among cautious investors and the general public
Note for projects:
A strong go-to-market strategy:
Leveraging speculation can be an effective initial market entry strategy. For instance, projects like Friend.Tech have capitalized on this by drawing attention through speculative demand.
Need for sustainable mechanisms:
However, relying solely on speculation is not advisable. Projects must look beyond the initial speculative allure to develop sustainable mechanisms. Over-reliance on speculation can lead to distrust and a negative reputation, as seen in some cases. The speculative demand being high attention-dependent necessitates a balanced approach, integrating long-term value propositions alongside the initial speculative appeal. I wrote about how Friend.Tech is likely unsustainable and how it may improve here.
Final Words
As we navigate the evolving landscape of Web 3, it becomes increasingly evident that the path to mainstream adoption is complex and multifaceted. This journey is marred by the intricacies of aligning Web 3's value propositions with the real-world needs and perceptions of everyday users
The exploration above shows that many of Web 3’s value propositions – self-sovereignty, provenance and trustlessness, permissionless and composable, community governance and equitability and lower take rates – while conceptually compelling, are not potent enough to significantly drive user adoption. They cannot be regarded as the main selling point, but must be integrated with essential user considerations, like liquidity for exchanges or distribution channels for creators, to truly resonate
Web 3's inherent financial nature opens avenues for leveraging incentives and capitalizing on the demand for speculation, which can be attractive initial draw factors. However, the crux lies in crafting a system that is not only initially appealing but also sustainable in the long run. This sustainability is crucial for maintaining user interest and trust
Ultimately, the success of Web 3 hinges on delivering an enhanced user experience. Whether it's augmenting existing Web 2 platforms or enabling entirely new models and experiences, the application of blockchain technology and the ethos of Web 3 should culminate in a noticeably superior experience for users. This focus on user-centricity, combined with sustainable, financially savvy strategies, will be pivotal in shaping Web 3's path to becoming a widely adopted and valued part of our digital ecosystem
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