What is consumer crypto?

Consumer crypto is a term everyone uses in the space, but it’s generally poorly defined. It’s also often seen as the end goal for crypto: breaking the consumer market to finally become mainstream. The crypto space originally sees itself as an outlier. From the beginning, its protagonists knew that it was a niche, but the niche grew bigger. At first by iterating on fundamental aspects of the tech, by building more tooling, more performant infrastructures, because “the tech was not quite there yet”. Now, in 2024, there’s no more infra excuse. Even if they’re achieving that stage by making decentralization trade-offs, you already have L2s, or L1s like Solana that can achieve transaction fees so low that it would be enough for any good consumer product to at least demonstrate traction. The next frontier now is breaking into the consumer segment, but what’s hidden behind this denomination? Let's dive into it and explore past crypto cycle's history to find out more.

First we need a definition. I’ve looked online, but it’s such a broad matter that the ones I've found were not really helpful:

Consumer products are finished goods individuals or households buy for personal consumption. These products satisfy a wide range of needs and include basic necessities like food and clothing and discretionary items like electronics and home décor.

Ok, very helpful, thank you. Pretty much everything then. As an example to illustrate the confusion around the term “consumer”, I would like to show you this tweet that was shared with me recently:

In the list shared by @irffanasiff, you’ll find meme coin platforms, trading platforms, wallet apps, social networks, gaming platforms or hiring platforms. Clearly, outside of all being connected by the thread of web3, they have nothing in common, and for some of them, are clearly not consumer apps. Why is it that some people keep using “consumer apps” as a specific category in crypto, when it’s virtually everything?

First off, crypto sees itself as fundamentally anti-consumer, so people working in this space tend to use the word "consumers" as a proxy for "people who are not in crypto". There’s also an abuse in language when we talk about consumer apps: as a category, “consumer apps” either include everything and it’s pretty much useless, or it means something else, and we need to figure out what it is. I have a suggestion to offer here. When we talk about consumer apps in crypto, we actually mean products & services that have some -or all- of the following characteristics:

• Potential for mass market

• Potential for organic virality

• User-Friendly

For example, crypto people would be reluctant to qualify AAVE or Uniswap as a consumer app because they don’t think they’re user-friendly apps: you need to learn how a wallet works, how a transaction works, gas fees, public keys etc. But more than anything, the fact that there’s no “safety net” in crypto- that if you send funds to the wrong address your funds are gone forever- is the anti-thesis of user-friendliness.

So by definition, because crypto can’t be user friendly, it can never be consumer grade? Yes and no. Yes because some applications of crypto will always be “hardcore” and require a steep learning curve. No because fortunately, we’ve had a lot of innovation and iteration in the infra/tooling space that have allowed us to make the whole crypto experience more user-friendly. So to go back to the original question, the reason why a consumer vertical even exist in crypto is because crypto has, for too long, been very non-user-friendly, killing its potential for mass adoption & mass market.

Another reason why crypto has lived with a self-perception of not being consumer friendly is because of the importance the infrastructure segment takes in this space. Infrastructures are usually layers consumers don’t interact with. They interact with apps built on these infrastructures. But blockchains are fundamentally backend infrastructures, so it’s only natural that the whole industry started around that. We’ve had 3 big waves of infra/tooling improvements since Bitcoin was born.

The first boom came between 2011 and 2013 with the birth of exchange platforms and self hosted wallet solutions. Although these are apps, they're so fundamental to having a functional industry to begin with that I would categorize them as infra/tooling. These 2 infra building blocks allowed more people to start using Bitcoin and gave birth to the first crypto “moment”.

The second wave came between 2015 and 2017, with the birth of Ethereum, smart contracts, in-browser wallets and tokens. All these innovations propelled the 2017 ICO boom, an attempt to revolutionize the Internet and the stock market. This was the first time people could actually start building crypto consumer apps at scale, which gave birth to the second crypto “moment”.

It’s also around that time that a very influential blog note was released: Fat Protocols. The gist of this blog post comes down to the drawing below:

It basically stipulates that most of the value capture in blockchain happens at the protocol level. It crystalized an investment thesis most VC in the space adopted, leading to an “infra inflation” that has plagued crypto user adoption. Stay with me here, because I need to make myself perfectly clear: I do believe infra innovation is good and it needs investment. I believe it’s necessary, and arguing the opposite would be like being a guy in 2000 saying “Hey, stop the mobile phone infra innovation! We already have small and performant mobile phones!”. Good thing Steve Jobs didn't listen to that guy. In the case of crypto though, we need to find a sweet spot where more funds should go towards apps, and less towards infra. Infra alone won't onboard consumers, apps will.

There’s an inflection point that I personally place around the previous cycle (2020~2022) where this switch should have happened. Venture Capital should have started to take more risk by investing into consumer apps. Between 2021 and 2023, we’ve had: lower fees on Ethereum with the transition to proof of stake, new higher throughput L1 emerging like Solana or Avalanche, more user friendly wallets, more user friendly UX for dapps, L2 becoming a reality… This is the 3rd wave of infrastructure innovation I was talking about, and this was the 3rd “moment” crypto had. But in spite of all these improvements, investment data for 2024 are still demoralizing:

Let me simplify the numbers for you: Looking at each category and putting them into 2 silos, consumer or not consumer, you'll get roughly 65% of the investment going into infra & tooling and 35% going into a very broad consumer segment. How do we want to onboard consumers if we keep pouring twice as much money in infra as in apps?

Retrospectively, we’ve had 3 opportunities to onboard consumers tied to these 3 infra innovation moments:

This mapping functions pretty well with the statistics we have about the amount of US citizens who own crypto: by 2023, this number was roughly 30%, which amounts more or less to the cumulated percentage onboarded through these 3 moments. There is, however, an untold story across these onboarding phases that explains the difficulties we’re having now to onboard new users. A story of letting people down and eroding a trust capital that is getting closer & closer to becoming empty.

During the first cycle before 2013, crypto was a cutthroat space. You could lose your Bitcoin at every corner. On top of that, the early main usages of Bitcoin were for illegal transactions and you had scams & failures (like MtGox) that made people lose money. All the ingredients were reunited to kickstart crypto’s nefarious image.

The second crypto moment that allowed us to approach consumers was 2017 with the ICO boom. 100th of new consumer oriented narratives appeared: the decentralized Uber, the Decentralized Twitter, decentralized Visa cards... 2017 democratized investment by letting consumers buy into tokens just like they would with stocks. The problem is that permissionless access to tokens means permissionless trading of tokens, and consumers were not ready for the wild west that is the trading space. They got decimated, buying high, selling low, and leaving the space in 2018 with the bitter feeling that they got played. On top of a poor trading experience, they had to navigate plenty of scams. This was also the first wave of personalities promoting all sorts of coins to their audience, directly impacting consumers who had zero experience in crypto. Last, this was the first time the SEC really started to look into what they considered being an “unregistered sale of securities”. All these ingredients led to, once again, labeling crypto as a nefarious space, where most people will lose money.

Then the 2020/21 bull market happened. 2020/21 was about decentralized finance, bringing access to financial products to the masses. It was about art, with NFTs, enabling a narrative of artists finally being paid fairly. It was about letting gamers monetize their game experience. It was about collective governance for projects through DAOs. 2020/21 was the peak consumer moment because it really brought crypto into mass consumer products like gaming, music or art. But once again, everything eventually collapsed: Pump & Dumps, NFT scams and systemic failures with the crash of Terra Luna, BlockFi or FTX. This, once again, was devastating for crypto’s brand, and reinforced the bad image a lot of consumers had developed from the previous hype cycles.

As people building respectable products and technologies in this space, we know it’s only partially true (we can’t deny the scams that have happened across the space), but we also know that what’s been built for the past 15 years is invaluable for our societies. We need a decentralized technology that scales. However, there’s just so many times you can disappoint consumers without having to bear the consequences. We’ve already let them down 3 times, and last time was spectacular (remember the FTX super bowl ad? Now think about all the user acquisition this ad generated for FTX, and think about how they were all impacted by the FTX bankruptcy). We won’t have many tries left for onboarding consumers. How do we keep building and offer new crypto consumer products & services to people against their will?

It’s pretty much accepted now that the whole crypto experience will have to be abstracted. We’ll likely have 2 categories of users:

• Hardcore users who know how to interact with blockchains, representing a small fraction of the whole pie.

• Regular consumers, who will be using products running on the blockchain, but with a completely abstracted experience.

I think there was a time in the past 15 years when we collectively believed regular consumers would learn how to use wallets or how to send a transaction. I don’t think we believe that anymore. The only way we grow significantly in the short to mid-term is by abstracting the blockchain experience to the user. One unpleasant experience I had when building in the music NFT space in 2023 was when I went to a music tech conference in LA: crypto was literally a laughing stock. Every panelist was cracking a joke about NFTs. This helped me realize that we won’t recapture this audience with an “in your face” strategy, but rather by abstracting the crypto aspect away and by offering them true value they’ll eventually find out actually comes from the product being onchain.

So how should we keep building in order to deliver successful crypto consumer apps? I have a few ideas:

• Abstract the blockchain experience as much as possible.

• Implement sponsored transactions in your user experience.

• Pick a chain that can draw synergies with an already significant pool of existing tools & products.

• Don’t talk about crypto in your app. Don’t talk about airdrop or token prices.

• Focus on the user experience. Make sure your onboarding is flawless and doesn't require users to interact with the blockchain immediately.

• Define your value proposition outside of crypto. Decentralizing an app is not a compelling argument for the majority of users.

• Rethink the language you're using in your app: Wallets, Transactions, Coins... Try to come up with a more neutral terminology, less reminiscent of money.

• Be mindful of the financialization of your app. People don’t like the feeling of losing money (cf. loss aversion). If you give them X incentives for free but they end up leaving the app with X-10 because of market fluctuations, they will feel like they lost money and have a negative experience with your product.

• Make sure to surround yourself with a team that has experience building in the consumer space.

• Come up with the right user acquisition strategy. You can use the crypto crowd as an early adopter’s layer, but you have to be mindful of the balance. If you build a social product and your early users talk about crypto all the time, it might deter regular consumers when they land on your app.

With all that being said though, I do believe there’s another path for growth in crypto. You basically have 2 options: you either choose to go for consumers right now or you decide to capture the crypto niche first. In this case, your path to mass market growth will be different and you will most likely need to grow at the speed the whole crypto space grows. That’s why I was mentioning “short to mid-term ” early on. I do believe the path to mass adoption for crypto without abstraction is bleak for the short to mid-term, but long term is unpredictable. There is a world where, with time, there’s a shift in crypto’s perception and everybody uses a crypto wallet. When this hypothesis becomes a reality, the niche market you captured will turn into a massive opportunity to become a default consumer app. The important thing here is to know which strategy you're going for, and build your GTM accordingly.

It’s time to redefine what we mean when we talk about “consumer apps” in crypto. It’s often times more a goal than an actual relevant product category. From my experience, in the crypto space when we talk about consumer apps we often talk about one of the following verticals: gaming, social, entertainment/art, collectibles, sports, food, betting, fashion, dating, health, and I'm probably forgetting a few of them. The point here is that they're all different categories and all require tailored approaches. The crypto space needs to operate a mental model shift. We need to finally see ourselves as a space ready to be consumer friendly. We now have the tools to make it happen, so let's get to work.