Notes on Consumer Crypto | Aug 17, 2024

Welcome to my weekly consumer crypto-focused braindump of things I'm thinking about and have bumped into during my internet travels.

Here's what I found interesting this week...

Jarrod Dicker joined us on Internet Explorers to jam on a few of the articles he wrote this week, and generally just catch up on what he’s finding interesting in consumer crypto.

His first post, Surprise Me, discussed the importance of surprise and unpredictability in product experiences. Successful user acquisition, media distribution, and community discourse are all downstream of having something interesting to talk about, and facilitating surprising experiences is firepower for that.

“The best products aren’t judged by what they do, but how they make you feel”. 

I’ve always felt that “why will people care” is a better guiding question for startup building than “what problem are you solving” for this exact reason. Elegantly solving a genuine problem someone has is one way to invoke emotion and get people to care, but it’s certainly not the only way.

This also highlights why all these pump fun derivative products continue falling on their face. Pump fun has already used up all the surprise potential from the novelty of bonding curve based memecoin launchpads and used it to attract the strong network effects they now have. 

The product isn’t the interface, it’s the experience, and they’ve aggregated the meme creators, degenerate liquidity, and willing cult community members that continue to make the experience surprising and fun. If you’re going to go after them you need to start from how you’re going to evoke meaningfully more emotional response and surprise, not from thinking about subtle changes you could make to the software.

His second post this week was The Consumer Crypto Paradox. In this one he outlines how in web2 it’s very uncommon for consumer companies to even consider monetization until they have a huge and retained user base, whereas in web3 projects are often focused on capturing fees from day 1. He thinks this is both limiting the breadth of products that are being built, as well as the scale potential of existing ones.

One impact of this he talks about is the need to deposit funds during onboarding for the vast majority of consumer crypto products, which he likens to paywalls. We’re all used to this so it’s easy to look past, but it’s really an absurd thing to have to do to try out a product you know nothing about.

The challenge of course is that the most obviously differentiated products we can build on crypto rails today have speculative and financial wedges, so that’s where the greenspace opportunity is. But I do think there’s a lot we can do to improve onboarding by designing more free to play experiences into these products and exploring ways to give people tokens they can use before requiring they buy / deposit.

That being said, I’m also a fan of monetizing early if your product is creating contexts that people want to transact within. Attention can be very ephemeral so capturing value from it while you have is often a smart move, especially if it can get you off of the venture capital hamster wheel and give you more optionality on your company’s future.

So I don’t know. While I certainly agree we should be more thoughtful with accessible onboarding and build & invest in more things that leverage crypto in less speculative and financial ways, monetizing early is a pretty magical opportunity that crypto uniquely provides. But understanding the experiential and growth tradeoffs you’re making by doing it is critical.

We’re over a week into the new Zora Protocol being live so wanted to check in on how the numbers look and what the general sentiment is like so far.  

It’s funny how experientially minor of a change it actually is (there are now liquid secondary markets, that’s it), but how significantly it alters the mindset of creators and collectors.

First for the numbers, pulling from this dune dashboard. 273k wallets have collected from 18k collections since launch, driving 340 ETH in mint volume and 1250 ETH in secondary volume. That secondary volume is very notable because that was effectively 0 before. 

If we zoom in, the vast majority of that primary and secondary volume is from the commemorative mint Zora dropped for the protocol upgrade and the mint Base dropped commemorating the first birthday of the chain being live. The Zora token is sitting at roughly mint price after pumping ~30x on deployment to Uniswap. The Base token is down ~5x from mint price after ~2x-ing immediately after deployment to Uniswap. 

It’s a similar story for all mints that have gotten a meaningful amount of attention. People recognized the new speculative game that could be played here so bought a bunch of tokens hoping to flip some (or all), but largely the secondary demand hasn’t materialized. Basically all tokens with more than 1,000 mints are trading way down from mint price.

Interestingly the tokens below 1,000 mints are performing much better, and are largely holding around mint price or are slightly up. This is great. Anyone that wants to go buy these pieces can easily buy them and anyone that wants to sell them can go sell them, and there isn’t rampant speculation distracting from that.

Yet a bunch of creators are mad. People are saying they’ve lost creator’s respect, they’ve turned them into oil for the cogs of liquidity pools, they’re making art worthless, are using them as a tool for volume and interaction on the platform, it goes on. This is nothing new though, it happens every time Zora makes meaningful changes to their protocol or product.

It’s amazing how triggering turning an ERC1155 into an ERC20 can be, and I find it pretty contradictory to want to be able to sell something but not want there to be an efficient market for it. 

I also get it of course. Putting a lot of time into something and having to sell it for 30 cents a pop can’t feel great. But it also allows people to support you at whatever level they want, makes it a much easier decision for someone that isn’t yet a true fan to buy, and helps drive attention to onchain content better than anything we’ve seen yet.

I understand Zora’s desire to keep things ridiculously simply, but it could be interesting for them to test out a “premium” pricing tier at something like $10 to help combat some of this concern. 

Anyways I continue to be excited about the mechanism and am confident having liquid markets will net out better for both creators and collectors. Creators just need to zoom out, build growing audiences of people that care and love their work, and keep on creating.

It’s been interesting to watch Party continue stepping further into the onchain creator world. They launched Create a month ago which has similar intentions to Zora’s new protocol, and this week they introduced Sets which makes it easy to create an NFT collection with different rarities.

It’s a tough journey they’re on. Party started off building collaborative tools for doing things on chain, and have an audience and brand pretty strongly associated with that. It’s very hard to reorient a solidified brand around something completely new, especially a product that needs a meaningfully different audience to succeed.

And you see that playing out in the quality of content that’s getting created there. They’re lacking the social context that motivates collecting and thus higher quality creating, and they have a pretty unopinionated brand and product which makes it harder to know exactly what you’re expected to do there, so it just ends up being a confusing experience for me.

I’m an experiment-maxi though and love the team so not trying to shoot this down in any way, just relaying my experience. I’m excited to see where they take it from here.

One of the biggest issues with current models in my mind is how little value projects capture from speculative activity, and I’m starting to see rumblings of new token infrastructure that is addressing this problem. 

Tokens are products and the majority of people who consume your media, believe in your mission, or loosely care about your project in any way will participate through buying and selling your token. In some ways, tokens are the new t-shirts. But for projects to not capture meaningful value from that product consumption is absurd.

We need to move towards models that unlock the flywheel where attention drives speculation, speculation drives revenue generation, revenue generation is used to reward and incentivize world participation, world participation drives more attention, and the loop accelerates.

Meteora and Moonshot announced a launch this week that allows memecoins to lock liquidity while still maintaining the ability to claim fees earned through the pool. They estimate that over half a billion dollars in fees have been lost by locking and burning liquidity, and WIF alone has lost ~$100 million. That’s fucking wild.

This new liquidity product allows both creators and early holders of Moonshot tokens to maintain claim rights on fees in perpetuity from the locked liquidity that gets pooled during the bonding curve period.

Another new product worth keeping an eye on is Baseline. I’m not going to go into too much detail, you look at the docs for that, but it’s essentially a tokenomics engine that sits on top of uniswap and actively manages the liquidity to provide a guaranteed and increasing baseline value for the token and a baked in credit facility with no liquidations. 

It’s kind of wild and confusing and I’m still wrapping my head around it, but the team is cracked and I sense there could be something pretty interesting here if someone plugs it into a social token network that people care about. 

So if I step back, a good consumer token model in my mind:

• Releases a token early, recognizes the end state is entirely unclear, and maintains optionality on how it’ll evolve in future

• Has mechanics to distribute tokens over a long time frame to users / participants that are creating value

• Captures value from the speculation layer and funnels it into the core 

• Has tokens integrated into a reputation / identity layer that people genuinely care about

We’re getting there.

I’ve been a lot about how financialization and speculation is the most tangible differentiator of crypto and the first round of killer apps will probably all use those properties as a wedge into their markets. I continue to very much believe that, and it’s what I talk about the most because it’s the thing right in front of us, but what gets unlocked from there once 100s of millions of people are doing things onchain is where this all gets really exciting.

It’s where the magic of interoperability will run wild, and I loved 0xDesigner’s thread compiling all his designs related to it. Just go look at them.

I was in New York last week meeting with a bunch of investors and founders, we’ve been helping a bunch of our SC06 and SC07 teams fundraise over the past month, and this was another week of non stop calls with more early stage founders. So I have a pretty wild pulse of the state of everything in consumer crypto right now.

And I just couldn’t be more excited. We’re attracting new founders to crypto that are pragmatic, untarnished, and have fresh ideas. We have increasingly high quality emerging examples that people can look to for inspiration. There’s so much cool early stage shit getting built. And slowly but surely investors are figuring out how to write checks into consumer.

A few notes on raising money as an early stage consumer crypto founder right now:

• There’s a strong desire to get consumer exposure but still a lack of true conviction within firms. Projects with early signs of traction that can underwrite the decision are getting deals done, but projects that are pre-product are having a much harder time.

• Being able to convey an inevitable path to meaningful short term usage is critical. Everyone knows consumer is hard and unpredictable, but if you can give investors confidence you can get in market, attract and iterate alongside a well targeted user base, and get somewhere interesting in 6 months the conversations get much easier.

• Everyone and their mother are building memecoin launchpads (and to a lesser extent, prediction markets) and unless you have something very novel it’s really hard to stand out (both in the market and in fundraising).

• Being a first mover in an emerging ecosystem with attention (berachain, monad, megaeth) can give you some firepower. Investors know there’s a bunch of liquidity ready to be deployed into them and probably not many products to use early on so the short term path to attention and usage is clear. 

I wanted to write more here but I’m running out of time and brainpower so just a few quick things. 

It’s been great to see the crypto growth stack and onchain distribution ecosystem get built out over the past year. Safary dropped a good report highlighting a bunch of these projects that you should read.

This was a useful thread. TikTok is an absolute distribution beast and you need to be using it as a consumer founder.

Peter Pan tweeted that web3 is going to be completely incompatible with traditional advertising and I disagree. I think the short payback periods, high LTV, token incentives, and chaotic value props we have in crypto will run amok in traditional advertising. But we need to figure out efficient onboarding first of course.

Thanks for reading, I love you.