Web3 Projects - Facing "The Valley of Death"



The growth of Web3 projects, offerings, marketplaces, exchanges, nfts and the upcoming metaverse is releasing a tsunami of activity and applications into the market. All seem to have a similar key objective; to drive the underlying valuations of the tokens while lacking strong product fundamentals and value.


Financing of such projects has been driven by the rapid adoption of the token by early adopters and investors - counting on the ever higher price of the token for ongoing funding, but creating very little long tail of support and sustainable growth.


Adoption is starting to slow down and currently it seems that everyone is focusing on capturing users away from another protocol, instead of focusing on capturing new users away from other markets or other competitors, like Web2 applications and their users.


Such focus on token valuation instead of business fundamentals may ultimately shake the confidence of investors as they realize that many of the projects are not sustainable and do not have a go to market strategy nor clear path to revenue.



Opportunity


Lets understand the current scenario: there are many projects, but not many customers .. currently crypto projects are targeting 81M wallets (FYI- one individual may have multiple wallet addresses), which belong to early adopters - this provides a problem to the more than 18K coins(https://coinmarketcap.com/) in the marketplace - which on average, it represents an allocation of 4.5K wallets for each project and therefore not enough transactions or activity to make the business long term viable - making customer acquisition and retention a key challenge for any project.


Let’s use a much more specific example - DeFi (Decentralized Finance) Projects are currently driven by close to 4,500 Developers (Electric Capital Data), with 1,000 of them focused on the top projects and capturing a total TVL (Total Value Locked) of over $100B… The remainder of the projects are fighting for the attention of other 4.5M DeFi wallets ..so any new project that is trying to break into this market space must; have a strong value proposition to be able to capture community interest, developers & transactions from a competitor, or they must focus on solving a unique problem that will allow them to capture users from outside the blockchain and De-Fi ecosystem.


For example; While DeFi has 4.5M wallets in use; a leading Web2 financial application like mobile banking from Bank of America has over 30M end users utilizing their application, and mobile banking has over 500M end users worldwide. (https://www.statista.com/statistics/592965/mobile-banking-users-of-bank-of-america/)


This highlights the great missing opportunity that Web3 applications face.


Web3 Applications are trying to move from the early adoption phase to early majority, as described in the Technology adoption cycle by Geoffrey A Moore in the book "Crossing the Chasm" , therefore they must attract and provide a strong value proposition for those users to cross the adoption chasm.. And the only way that it is done, is by creating a greater value and convenience for their user than they are currently receiving..








The current hyper growth strategy has been focused around the capturing of application developers to build the ecosystems and applications that will in turn drive consumer adoption. The underlying problem is that the new applications must be built with a new consumer in mind. It is no longer the early technology adopters, but the public at large, and their needs and wants are very different from the current user profile, requiring a different approach and incentives for developers - moving their focus from token value to product value.


This forces projects to change from a technology driven project, to a usability driven approach ( Think of; how many wallets do you have ? Have you tried to transact between multiple chains and projects? And how much cost have you incurred ? Have you trusted the process ? and are you confident that it will happen? )All of those factors show that current projects are still driven mostly by technology and not focused around the user.


The solution - Back to basics


New projects must go back and focus on key business fundamentals;

  • Product innovation

  • Customer value creation

  • Customer engagement

  • Go to Market

  • Economic and rewards models

Facing the “Valley of Death”


As the market matures,one of the problems facing many teams is the inability to access new capital due to lack of token activity, value or interest from external funding sources. To address this conundrum,.. projects must go back to the basics.. develop applications driven by business fundamentals, customer growth and addressing the dreaded product-market-fit.


Many years ago, Dr. Doug Maughan wrote a paper called “The Valley of Death” focused on helping engineering teams to commercialize deep-technology research into commercial products;


The description of the paper resonates in today's environment - “New and innovative technologies will only make a difference if they're deployed and used. It doesn't matter how visionary a technology is unless it meets user needs and requirements and is available as a product via user-acceptable channels.”


Such advice is more relevant than ever in these environment, as most blockchain projects follow a similar approach - Research creates a new protocol - Development of the product focused on current models (De-Fi, NFT, etc) - Commercialization is focused on serving the needs of the current users instead of new ones …




http://www.csl.sri.com/papers/ieee-sp-tt-2013/ieee-sp-tt-2013.pdf


Think about the current tokens and their path - development- token sale - defi models to increase TVL - additional token sale —-- so what happens when the token does not increase in value because the underlying premise and product does not have adopters ? funding dries up, incentives to developers dry up, applications are no longer being ported to the new protocol and the token dies a slow death and it joins the many of the other 17K non performing coins…. In desperation, organizations view the access to the exchanges as their path to value, but the only thing that occurs is that they spend the remaining capital in trying to create trading demand while ignoring the core of the problem; Does the product solve a problem that someone wants to pay money for ? and can it be done in a sustainable and scalable way ? if it is, then properly designed tokenomics or the behavior driven economics will support the value of the token and its investment attractiveness.


Summary


For Web3 companies, that are mostly led by strong engineering teams - the path has been mapped .. the question is; are you ready to embrace it or do you think you can change the formula .. and my suggestions is .. better figure it out quickly .. what do you want to do?...what does the product deliver?..and do customer care?. as the valley of death is unforgiving .. as much as you may think you are making progress, and you count the amount of tokens/coins that you have, and dreams of richness cloud your vision.. Look into the valley and understand that before such richness can materialize, there is a long journey ahead full of perils and where mistakes or lack of value are unforgiven by the market and investors..