Notes on Consumer Crypto | May 10, 2024

Ohhh we're back baby. I've been travelling too much the past month but now I'm back, settled, moisturized, and writing newsletters again. Think I put together a good one this week...

We kicked off the show this week with worm, the founder of accidental product studio Context. They made some noise this week with the announcement that their flagship product mint.fun got acquired by Zora, as well as the drop of their latest experiment rug.fun.

They’ve been on an absolute journey over the past few years. The company started with the Context app, which was probably the first web3 social feed. They then dropped mint.fun, an NFT mint aggregator, as a weekend project during the last bullrun which got so much immediate traction that they shut Context down and focused all their attention on it. Then earlier this year they dropped meme.market which integrates meme-making into memecoin creation, but this hasn’t seemed to get much traction. And just yesterday they launched rug.fun, a memecoin creation game where coins compete to win liquidity from other coins.

I was interested in hearing about the decision behind the Zora acquisition and the throughlines and insights from all the products they’ve built, but was most excited to dig into their thinking behind and plans for rug.fun.

It sits squarely on an opportunity I’ve been thinking a lot about recently, which I annoyingly describe as productizing memecoin consensus building. 

The holy grail in memecoins is to become the consensus schelling point for a culturally infectious meme, but it’s very hard to achieve this in today’s environment. You need a crazy strong and relentless meme team, a passionate core community, and a ton of luck. There’s nothing that says the Costco Hotdog deserves to be a $40m memecoin (case in point), but the people behind it were able to meme the network effects and a social context into existence that created a great ownership experience around it, making it feel inevitable.

The flipside of this is that wayyy more memes could be valuable memecoins if enough attention is able to be aggregated on them. But the noisy wastelands of pump.fun, dexscreener, and crypto twitter spread attention far and wide. 

There’s potentially an interesting opportunity to create product experiences that focus attention and energy on a smaller number of memecoins and more predictably help them breakout. I’ve been thinking about it more through narrowing onto specific categories and building tailored product for them (a social sports product where fans compete to have the most valuable memecoins for example), but rug.fun is another great example. 

It’s very possible that this won’t work and you actually need the natural internet selection to create great memecoins, but I need to know. I’ll be watching this one closely.

Watch our chat with him here.

This tweet from 0xDesigner post-farcon was making its rounds through all my group chats so figured it would be worth talking about. I also had a bunch of related conversations with people throughout the event.

As I see it, Warpcast has to win for Farcaster to win. Or at least Warpcast will have to be the dominant client for a long time for the Farcaster protocol to ossify into a core piece of internet infrastructure. 

If another client suddenly started dominating protocol usage in these still early stages there would be a huge incentive for them to fork the protocol. It would not only give them more control over protocol development and fees, but would likely be a smart tactic to get users not yet using that client to switch over.

Many people are saying a token would solve this, but I’m not sure it actually would. It would certainly help accelerate the network effects and grow the ecosystem faster, but it wouldn’t change the incentive and opportunity a dominant client would have.

So the bull case is that Warpcast continues being a dominant client, and there’s an expansive ecosystem of apps leveraging and building upon the open social graph as complementary experiences. 

But also, they should obviously launch a token.

We’ve been screaming about the inevitability of this cycle being consumer dominated for years, and we’re finally seeing numbers that are waking people up to it. This week 4 pure play consumer products broke into the Top 15 protocols for fees generated. Let’s fuckin go.

There are a number of things to dive into here.

First, I wrote a piece over a year ago outlining emerging business models for consumer crypto projects. I highlighted membership, first-party drops, curated drops, identity products, collectibles, services, transaction fees, and network value (token) as opportunities to keep an eye on. It’s dead clear now that creating a context people want to transact within, facilitating a high volume of transactions, and taking small transaction fees is the killer business model of consumer crypto. Zora, Friend.tech, Unlonely, Fantasy.Top, Pump.Fun, Sofamon, the list goes on.

Second, consumer projects are still so dramatically undervalued compared to infra. Mode launched this week, is doing less volume and making way less fees than friend.tech, has nothing interesting built on it, yet has 3x the valuation. I don’t see how this doesn’t violently correct once the market realizes consumer products have all the leverage, will vertically integrate, and consume / commoditize infrastructure. This is so obviously the consumer, socialfi, memecoin cycle. Pack your bags.

Third, the current success of Fantasy.Top, Pump.fun, Friend.tech had us talking about staying power and what’s actually going to breakthrough into the mainstream. The user numbers are still so small (15k DAUs for Pump.fun, 10k DAUs for Friend.tech, 1k DAUs for Fantasy.Top) and it’s hard to see anybody outside of our little bubble using these products in their current forms. I wouldn’t really care if I was these teams right now, they’re printing and should absolutely keep riding this, but how they go from niche crypto products to mainstream products is something we’re constantly thinking through. 

Current token models and distribution mechanisms are broken. Points into airdrops into low float / high FDV launches are all falling on their face. Everything is overfarmed and nobody actually cares about the tokens they’re receiving. It’s exhausting and clear most people are over it.

Hayden dropped a good tweet reflecting on this, but I think the bigger point is what I mentioned above about the infra cycle just being over. We’re entering the consumer crypto cycle, and we’re going to need new consumer-centric token models to go with it.

In the past we’ve tried to squeeze consumer token models into protocol token model frameworks (governance over protocol changes and treasuries), but it’s been clunky as hell. Not only does nobody actually want to govern anything (they want to be served), but it’s actually made these tokens less effective at capturing the attention / social / cultural value of a project. 

I think $FRIEND is a hint at what this may look like. People just want an understanding of why the token matters, how the number will go up, and for it to give them some perceived ownership over a project they care about, and integrating it into the social / experiential side of a product accomplishes this well.

We’ve also talked a bunch about how effective social distribution (empowering the community to distribute tokens) is proving to be at making scene participation more fun and rewarding, and it likely being core to consumer token models.

Another underexplored but important component is figuring out how to capture some value from the speculation layer. Tokens are products, a large percentage of network participants are going to consume them as products through buying and selling, and not capturing value from that seems obviously wrong. 

So if I squint, I see the future of consumer crypto token models being integration into the social and experiential layer (reputation, earning fees, premium experiences, etc), social distribution mechanisms that build the scene and distributes ownership over time, and value capture at the speculation layer that either capitalizes the project to keep serving people and/or sustainably feeds the social distribution mechanisms.

I haven’t been too deep in Blast but I need to recognize how crazy good of a job they’re doing king making the products and tokens on their chain. A ton of my feed this week was people celebrating blast jackpot wins and being pumped about their gold earnings. 

They’re completely consumerizing ecosystem participation and are giving their projects a great chance to build something useful alongside this incentivized usage. Fantasy.Top without an instant critical mass of attention and liquidity doesn’t work, but it’s obviously a compelling game with it. Blast gold is largely to thank for that.

There are obvious questions around sustainability and staying power, but in the crowded L2 ecosystem they’re doing exactly what they need to do to give themselves and their projects a chance.

Have a good weekend loves.