New Trends in the Encryption Industry: Major Models of Web3 Consumer Applications and Their Opportunities and Challenges

Recently, the encryption market sentiment has been low, and liquidity has contracted. Against this backdrop, more and more industry insiders are beginning to contemplate the next value narrative of the Web3 industry. Among them, the Web3 consumer application track has become the focal point of numerous discussions. Only with the emergence of more applications aimed at ordinary users can this overbuilt infrastructure ecosystem bring about real user adoption and sustainable commercial value.

This article will provide an overview of the mainstream paradigms of current Web3 consumer applications and explore their respective opportunities and challenges.

What are Web3 consumer applications?

Consumer applications refer to software applications aimed at ordinary users rather than enterprise users. When you open the App Store, most of the applications in it fall into this category. Web3 consumer applications specifically refer to software applications for consumers that have Web3 characteristics.

According to the classification of most app stores, we can roughly divide the entire consumer application sector into the following 10 categories: social, productivity, entertainment, lifestyle, gaming, education, tools, finance, health and fitness, and travel. Each category has different sub-segments. Of course, as the market matures, many new products will combine multiple features to find differentiated selling points to some extent, but we can still make simple classifications 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 for Web3 consumer applications:

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

This paradigm aims to leverage the technical characteristics of Web3 infrastructure to enhance the competitive advantage of products 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.
• Brings data sovereignty to users, allowing personal privacy information to be directly hosted on local trusted devices, avoiding privacy leaks.
• Many projects tout themselves as "decentralized XX", such as decentralized social media, AI large models, video websites, etc.

Challenge:

• Consumers' attention to privacy needs to be prompted by large-scale privacy breach incidents, while完善的法规 can effectively mitigate such issues.
• If privacy protection is based on a more complex product experience or higher usage costs, its competitiveness will be insufficient.
• Overemphasizing privacy protection may undermine mainstream big data-based business models, making it difficult to design sustainable business models.
• Relying on "token economics" may introduce unnecessary speculative attributes, which is detrimental to product market fit.

low-cost global 24/7 trusted execution environment

Opportunity:

• Numerous L1 and L2 provide developers with a new, global, and round-the-clock multi-party trusted program execution environment.
• It can effectively reduce the trust costs and development costs of multi-party collaborative business, especially in scenarios such as cross-border payments.
• Stablecoins are a great example of this type of application.

Challenge:

• The applicable scenarios are relatively limited, requiring conditions such as multi-party collaboration, independence of parties, balanced scale, and data sensitivity.
• Currently, it seems that most of these application scenarios are concentrated in the financial services sector.

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

This paradigm aims to introduce encryption assets, leveraging their high financial attributes, to enhance product competitive advantages in mature scenarios. This is mainly reflected in three aspects:

Reduce customer acquisition costs through token-based marketing activities such as airdrops.

Opportunity:

• Tokens have extremely high financial attributes and are assets created out of thin air, which can significantly reduce the risks of early-stage projects.
• Compared to using funds for promotion directly, using zero-cost created tokens for user acquisition has a higher cost-effectiveness.
• Many TON ecosystem projects and mini-games adopt this approach.

Challenge:

• Most of the attracted users are speculators, and the later conversion costs are extremely high.
• There are a large number of professional airdrop hunters or studios, which may lead to misjudgment of product market matching.
• With the widespread application of this model, marginal returns gradually diminish, and customer acquisition costs gradually rise.

User loyalty program based on "X to Earn"

Opportunity:

• Utilize the financial attributes of tokens to reduce the cost of user retention and activation.
• Reward pre-defined key user behaviors with token-based incentives to establish a user loyalty program.

Challenge:

• The motivation for users to earn profits will shift their focus from product functionality to profit rates.
• If the potential yield decreases, users' attention will quickly wane, which will have a significant impact on products that rely on UGC.
• If the yield is based on the token price, the project team will face pressure for market capitalization management, especially during bear market phases.

Directly monetize the financial attributes of tokens

Opportunity:

• Provides a new business model for the project, which is to cash out directly by selling tokens.
• Compared to the traditional model, which requires a long-term accumulation of traffic or convincing users to pay, this method yields results faster.

Challenge:

• This is an unsustainable business model that is prone to falling into a zero-sum game.
• After the project's early high-growth stage, due to a lack of incremental capital inflow, the interests of the project party may be in opposition to those of the users.
• If cashing out is not actively pursued, the project may fall into the predicament of relying on financing to maintain operations.

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

This paradigm focuses on providing services for Web3 native users. It is mainly divided into two categories:

Conduct monetization design around the untapped value elements of Web3 native users, creating new asset classes.

Opportunities:

• At the initial stage of the project, having pricing power over a certain asset, thus obtaining monopoly profits.
• The competitive barriers that need to be established through intense market competition in traditional industries can be quickly realized here.

Challenge:

• It relies more on team resources and needs to obtain the recognition and support of individuals or institutions that have "pricing power" over encryption assets.
• The pricing power of encryption assets dynamically shifts among different groups, requiring the team to have a strong market sensitivity.
• Establishing partnerships with "price makers" usually requires significant costs, as it involves competing with the preferences of all encryption asset creators for the "price makers."

Provide new tool-based products to serve the unmet needs of Web3 native users in the market participation process.

Opportunity:

• With the popularization of encryption currency, the overall user base will gradually expand, bringing possibilities for user segmentation.
• Focusing on the real needs of a specific user group makes it easier to achieve product-market fit.
• It is possible to establish more robust business models, such as trading data analysis platforms, trading bots, information platforms, etc.

Challenge:

• Although the product development path is more robust, the construction cycle is longer than that of other paradigm projects.
• Due to being demand-driven rather than narrative-driven, it is often difficult to obtain large-scale financing in the early stages.
• Maintaining patience and staying true to one's original intentions amid the complex myths of wealth brought about by "token issuance" or overvalued financing is a challenging task.

It is important to note that these three paradigms are not completely independent; many projects may simultaneously contain characteristics of multiple paradigms. For teams looking to start a business in the Web3 consumer application space, it is crucial to comprehensively assess their own advantages and demands, and choose the most suitable paradigm.