Paradigm of Web3 Consumer Applications and Investment Theoretical Considerations

In the past period, Alliance DAO has successfully incubated Web3 consumer applications such as Pump.fun and Moonshot, gaining significant influence. This article will summarize Alliance DAO's investment philosophy in the Web3 consumer sector and provide observations on this sector, reviewing the mainstream paradigms of current Web3 consumer applications, the challenges they face, and 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 invested in 28 Web3 consumer applications, which can be roughly divided into 7 major categories:

1. Life Style Category: Projects that cultivate users' innovative and healthy lifestyles, such as StepN, Sleepagotchi, GM, etc.

2. Games Category: Web3 games or GameFi, including Axie Infinity, Genopets, Nine Chronicles, and 10 other projects.

3. Crypto Speculative: Products that meet users' Crypto speculative needs, such as Pump Fun, Moonshot, and Candlestick.

4. SocialFi Category: Tokenizing users' social media influence, creating new speculative targets, including six projects such as fantasy.top, 0xPPL, time.fun, etc.

5. Creator Economy: Web3 content distribution platforms providing new economic models for content creators, such as Koop and CreatorDAO.

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

7. Tool category: Products that solve real-life problems for users, such as Web3 map proto.

From the investment trend perspective, Alliance DAO primarily invested in Games and creator economy projects in the first half of 2021-2023. In the second half of 2023 to 2024, the preference shifted towards Crypto speculation, SocialFi, and finance.

The investment philosophy for the Web3 consumer track is summarized as follows:

1. It is believed that the ecological infrastructure tools have become mature, 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 to prevent distortion of PMF validation.

3. The target users can be divided based on Web3 acceptance, with non-Web3 ordinary users on the left side and Web3 native users on the right side. For the users on the left side, the main approach to reduce customer acquisition costs is through "advertising tokens", while for the users on the right side, the focus is on new assetization targets, bringing investment speculation demand or addressing the unique needs of Web3 native users. Currently, the preference leans more towards the latter.

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

Web3 Consumer Application Paradigms and Their Opportunities and Challenges

There are three common paradigms of Web3 consumer applications:

1. Utilize the technological characteristics of Web3 infrastructure to optimize traditional consumer application issues:

• Ultimate privacy protection and data sovereignty: Opportunity: Utilize technologies such as ZK, FHE, TEE to provide users with data sovereignty and avoid privacy leakage. Difficulty: Consumers do not place enough importance on privacy, making it hard to find competitiveness in complex product experiences or high costs; excessive privacy protection undermines mainstream business models.

• Low-cost global 24/7 trusted execution environment: Opportunity: Use the Web3 execution environment to reduce the trust cost of multi-party collaboration. Difficulty: Applicable scenarios are quite demanding, currently mainly 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 Airdrop: Opportunities: Use tokens created at zero cost to capture users and reduce early risks. Challenge: High cost of converting seed users; diminishing marginal returns on customer acquisition.

• User loyalty program based on X to Earn: Opportunity: Utilize the financial attributes of tokens to reduce retention and activation costs. Difficulty: Users' focus has shifted from product features to yield rates, which is not conducive to long-term development.

• Direct monetization using the financial attributes of Tokens: Opportunities: Providing new business models, projects can directly sell tokens for cash. Difficulty: Unsustainable, long-term will lead to the opposition of interests between the project party and users.

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

• Constructing new narratives to monetize the untapped value elements of Web3 users: Opportunity: Gain new asset pricing power and enjoy monopoly profits. Difficulty: Relying on team resources to establish cooperation with "price makers"; it is necessary to seize opportunities during the "transfer of pricing power."

• Provide new tool-based products to meet the unmet needs of Web3 users: Opportunity: Focus on users' real needs to easily achieve PMF. Difficulty: Long construction period, difficult to obtain large financing in the early stages, requires patience.

Reflections on Investment Theories for Web3 Consumer Applications

1. How to surpass the speculation cycle is the primary concern for Web3 consumer applications. Taking Friend.Tech as an example, its product design introduces speculative attributes that attract a large number of users in the short term, but raises the entry barrier for users in the long term, leading to a detachment from the focus on product usability.

2. The investment evaluation mainly starts from two aspects:

   • Product operation data: user data ( active users, growth rate, retention rate, etc. ) and conversion data ( AUM, User spend, etc. ).
   • Team assessment: technical strength, market intuition, team resources.

3. The definition of successful Web3 consumer applications depends on the investment horizon. Short-term focus on token prices, long-term focus on revenue data and sustainability.

4. "Applying the factory pattern" may be a more deterministic business strategy, developing multiple products through continuous trial and error, allowing the market to choose the successful direction.

5. The next successful Web3 consumer application may have the following characteristics:

   • Utilize KOL influence to achieve cold start
   • Starting from the real needs of Web3 users, relying on product strength to win the market
   • Business model innovation, such as creating value by utilizing users' idle resources.

6. The categories of Web3 consumer applications where PMF is easiest to find:

   • Web3 social applications
   • On-chain trading tool applications
   • Payment applications
   • DeFi applications