Consumer Crypto’s Breakout Cycle

In 2018, Dani Grant and Nick Grossman of Union Square Ventures published The Myth of The Infrastructure Phase. In that seminal piece, the pair argue that apps inspire infrastructure, and in turn, that infrastructure inspires new apps. As they point out, this pattern can be seen in the evolution of new crypto technologies — from the creation of Bitcoin to early decentralized apps.

Today, we’re on the precipice of another set of breakout apps — crypto as the backbone for novel consumer experiences — powered by an emerging infrastructure stack.

The History of Apps-Infrastructure Cycles in Crypto

Over time, we’ve seen Union Square Ventures’ articulated trend play out in crypto. From Bitcoin leading to the creation of centralized exchanges — to Ethereum as a driver of early decentralized apps — key developments in crypto have seemed to mirror apps-infrastructure cycles.

Bitcoin → Wallets and Exchanges (early-mid 2010s)

As I covered in my article on wallets, Bitcoin (2009) facilitated the existing technology of an asymmetric key pair to be used to write to a public database, creating the first “crypto wallet.” The first “real world” Bitcoin transaction took place in 2010 on a Bitcoin forum. Coinbase (2012) and other exchanges subsequently launched with the goal of making it easier to securely send and receive Bitcoin.

Coinbase’s home page circa 2012

However, Bitcoin’s design as a digital currency rather than as a general purpose smart contract platform limited potential use cases.

Ethereum and ERC-20 → DeFi and DAOs (mid-late 2010s)

Ethereum launched in 2015 with the vision to serve as a next-generation smart contract and decentralized application platform. Launching shortly after Ethereum, leading crypto wallet MetaMask (2016) set a new paradigm for interacting with apps via web browser. Further, the ERC-20 standard for fungible tokens, implemented in 2017, allowed developers to create tokens for products and services.

This infrastructure then enabled early decentralized apps, including:

• DeFi: Lending protocols and automated market makers, such as Aave (2017), MakerDAO (2017), Uniswap (2018), and Compound Finance (2018), drove the creation of decentralized finance. Since then, DeFi Total Value Locked has grown to over $50B.

DeFi TVL over time (source: DeFiLlama)

• DAOs: Following early experiments MakerDAO (2015) and The DAO (2016), MolochDAO (2019) introduced the ERC-20 into its framework, which has since been used to create over 900 DAOs. Following Compound’s lead in launching an ERC-20 (2020), some of the most used protocols have launched tokens and transitioned into DAO structures. Today, there are over 19k DAOs managing over $30B in AUM.

State of DAOs as of Jan. 8, 2024 (source: DeepDAO)

However, the ERC-20 standard only works for fungible objects. Early NFT project CryptoPunks (2017) illustrated this, modifying the ERC-20 code just enough to produce non-fungible items.

ERC-721 → NFTs (late 2010s — early 2020s)

CryptoPunks served as inspiration for ERC-721 (2017), the standard for “Non-Fungible Tokens” or NFTs. Ethereum-based game CryptoKitties launched in November 2017, becoming one of the earliest and most well-known ERC-721 projects. CryptoKitties’ popularity — at peak, the game attracted more than 14k DAUs — led to the founding of NFT marketplace OpenSea (2017). Additional marketplaces (e.g., Art Blocks, SuperRare), financialization platforms (e.g., NFTfi, Blend), and discovery and tracking apps (e.g., Floor, Gallery) followed, helping facilitate increased adoption of NFTs.

Beyond ERC-721, additional NFT infrastructure standards have unlocked new use cases. For example, NFT compression — released by Metaplex and Solana Labs in Nov. 2022 — has enabled creator platform DRiP to cheaply distribute millions of NFTs to over 800k wallets. In addition, ERC-6551 (created in Feb. 2023) enables every NFT to have its own account/wallet address, broadening the aperture for NFT utility.

Today, the NFT market cap sits at over $7 billion.

State of NFTs as of Jan. 9, 2024 (source: NFTGo)

While NFTs brought crypto into the consumer spotlight, they also showcased many shortcomings in user experience: high fees, seed phrases, clunky onboarding, and more.

Crypto App Infrastructure Stack → Consumer Apps (Today)

We’re starting to see the infrastructure stack emerge that will enable the next set of consumer apps. This consists of low fee blockchains, embedded wallets, on/off ramps and bridging solutions, distribution channels, and identity protocols.

Emerging Crypto App Infrastructure Stack

Early experiments in consumer apps have led to developers building more consumer-friendly infrastructure. This crypto app infrastructure stack will power adoption for the next cycle of consumer apps.

Low Fee Blockchains

High Ethereum gas fees inhibit frequent, low value item transactions in casual, gaming, and social experiences. In the past few years, we’ve seen numerous Layer 1 and Layer 2 blockchains launch with more on the horizon.

Today, Ethereum still has 360k+ Daily Active Address and 1m+ transactions. But, there are many contenders for blockspace*, including:

• Solana: ~538k Daily Active Addresses, ~24m Daily Transactions
• Polygon: ~602k Daily Active Addresses, ~3m Daily Transactions
• Arbitrum: ~141k Daily Active Addresses, ~972k Daily Transactions
• Base: ~55k Daily Active Addresses, ~318k Daily Transactions

*Metrics as of Jan. 8, 2024

Ethereum Layer 2s will be further benefitted by EIP-4844: Shard Blob Transactions, a projected Q1 2024 upgrade expected to reduce fees of Layer 2 rollups by 10–100x.

Embedded Wallets

As I wrote a year ago, we’re seeing a shift toward apps owning the wallet experience to:

1. Seamlessly onboard consumers into Web3 (e.g., no passphrase required)
2. Offer financial services (e.g., on- and off-ramps, asset transfers, and exchange)

Wallet-as-a-service providers have risen to service this demand. These include Magic, Privy, Coinbase Wallet as a Service, Dynamic, and others. They are bringing a better user experience to consumer onboarding, with features such as:

• Login via phone number, social accounts (e.g., Google and Meta), or existing crypto app accounts
• Authentication via passkeys (e.g., FaceID and TouchID)
• Account recoverability

Privy’s user authentication flow

Many wallet-as-a-service providers are also integrating with account abstraction infrastructure providers (e.g., Biconomy, Zerodev, Stackup, Safe) to offer additional functionality made possible by programmable, self-custodial accounts (“smart accounts”), such as:

• Sponsored gas fees (eliminating users’ need to pay gas)
• Batch transactions (executing multiple transactions as if it’s a single transaction to save on confirmation time and gas costs)
• Session keys (enabling pre-approved transactions in a highly interactive app)

Adoption of this functionality is early but growing.

What’s next is to enable a more seamless single sign on across various apps. One possible solution is for mobile phones to natively embed private keys. iPhones and some Android Phones include a Secure Enclave, which is a dedicated piece of hardware that stores cryptographic keys. However, they don’t currently support the ability to use it for crypto-native keys. The Solana Saga Phone’s Seed Vault, which protects private keys via secure hardware and AES encryption, illustrates the potential on a broader scale. Capsule is also experimenting in this space with its Single Sign On solution, enabling one set of login credentials to access multiple apps.

On-Ramps, Off-Ramps, and Bridging

Historically, it’s been difficult for users to “fund” their crypto accounts. In the past couple of years, numerous solutions have arisen to tackle this problem:

• On-ramp to crypto: Kado, Moonpay, Stripe, Ramp, Transak, and others enable consumers to use credit cards, Apple Pay, Google Pay, and bank transfers to pay for crypto. Providers vary in payment method options, asset exchange and/or slippage rate, and processing fees.
• Off-ramp from crypto: On-ramp providers including Kado, Moonpay, Ramp, and Transak, have expanded to off-ramps, enabling consumers to exchange crypto to fiat from within apps.
• Checkout with fiat: Checkout solutions including Moonpay Checkout and Crossmint’s NFT Checkout enable consumers to buy digital goods and NFTs with a credit card.
• Use any token on any chain: Decent, Reservoir, Peaze, and others are focused on making it easier for consumers to transact in apps without worrying about gas, bridging, or swapping. Further, wallets (e.g., Metamask, Phantom, Trust Wallet) have launched integrated cross-chain swapping into their interfaces. With increased adoption of intent-first user architectures, users will increasingly be able to express their preferences and allow 3rd parties to fulfill them.

Kado’s on/off ramp offering

Identity Protocols

Over the past couple of years, we’ve seen protocols and services pop up around users’ multi-dimensional Web3 identities:

• On-chain transactions (e.g., DegenScore quantifying your on-chain skills and expertise)
• Assets owned (e.g., token-gating via Tokenproof, membership management via Guild)
• KYC and proof of humanity status (e.g., biometric/legal verification via Worldcoin, Proof of Humanity, or Coinbase Verifications leveraging Ethereum Attestation Service)
• Social persona (e.g., username on Lens, Farcaster, or Gallery; ENS domain)
• Real world accomplishments (e.g., receiving a POAP for attending an event, attesting to an Uber rating or Twitter following on ZKPass or Clique)

POAP’s curated ecosystem for the preservation of memories

With the rise of LLMs, we’ll see more consumer apps curate personalized experiences for consumers based on their on-chain persona and activity.

Distribution Channels

Historically, consumers have discovered decentralized apps via Telegram, Twitter, or Discord and accessed them via clunky, desktop experiences entailing downloading a wallet extension and signing numerous popup transactions. This is changing.

First, traditional app store policies are becoming more crypto-friendly and alternative distribution methods are emerging:

• Historically, one of the biggest barriers for web3 mobile has been Apple and Google taking a 30% cut on in-app payments. With EU’s Digital Markets Act (enforced in 2024), iPhone users will be able to download apps from outside the App Store. This opens up the opportunity for new 3rd party app stores to enable easy publishing and discovery of crypto apps.
• Recently, both Google Play and Epic Games have taken positive stances on including NFTs in games.
• FriendTech has shown that Progressive Web Apps (PWAs) — web apps that act like native apps — offer sufficient user experience to achieve adoption.

Second, crypto-native discovery platforms have launched in recent years:

• Quest platforms and protocols (e.g., Rabbithole, Layer3, Galxe, Coinbase Quests, Blaze)
• Crypto-native “app stores” (e.g., Flame for Web3 games, Launcher for consumer crypto apps, Mint.fun for NFT mints)
• Social discovery apps (e.g., Floor for learning what NFTs others are minting or purchasing)
• Transaction discovery engines (e.g., Daylight highlighting recommended on-chain actions based on prior wallet activity)
• Referral rewards (e.g., Sound, Rabbithole, and others offer incentives)

Flame’s Web3 game discovery platform

Third, incumbent platforms have started to integrate crypto, abstracting away technicalities and reducing friction. A few notable examples:

• Telegram: TON Foundation recently announced a partnership with messaging app Telegram on native integrations and promotions, including a crypto wallet. In addition, crypto trading bots using Telegram as an interface to streamline transactions (e.g., BONKbot, Maestro, Banana Gun) have attracted increasing users and volume.
• Reddit: The social media site’s NFT avatars have resulted in over 28 million mints from more than 25 million unique minters.
• Grab: The Southeast Asia superapp has been piloting a crypto wallet.

Opportunities in Crypto Apps

Already, we are starting to see early examples of consumer apps that can be built on top of this infrastructure stack. Below are some categories to watch in 2024:

Social

SocialFi app FriendTech’s initial rapid rise demonstrated how combining PWAs, embedded wallets, and low-fee blockchains provides a compelling foundation for a Web3 social app. I’m excited to see more experiments in social this year:

• Social speculation games: Tokens (and points) inherently financialize social interactions. From livestreaming platform Unlonely’s betting functionality to Farcaster’s in-app currency Warps, I’m excited by apps that embed speculation into social experiences to attract users, incentivize actions, and monetize.
• Community-driven memes: The success of coins like $BONK has demonstrated the power in rallying community around a memecoin. I expect we’ll continue to see longevity for memes that have teams driving them forward (e.g., $BONK boasts 120 integrations) as well as those with historical value.
• Web3-native character brands: PFP collections, including Bored Ape Yacht Club, Azuki, and Pudgy Penguins, as well as other NFT projects have focused ambitions on becoming the next (decentralized) Disney. From games to toys, it will be interesting to see if these brands go “mainstream.”

Given the difficulty of capturing consumer attention on the Internet, the biggest challenge is for projects to retain users’ money and time. One alternative is to launch ephemeral apps — casual, monetizable-from-the-start experiences that aren’t meant to last forever or reach venture scale.

Gaming

The success of early blockchain-based games (e.g., NBA Top Shot and Axie Infinity) in introducing player-owned economies led to a surge of funding in the space. From 2021 through Oct. 2023, over 16k new games were announced, with $19B allocated across almost 100 rounds. These games are increasingly coming to market, powered by infrastructure like embedded wallets, low-fee blockchains, and decentralized identity standards. I’m particularly excited about games:

• Leveraging emerging technology, such as AI NPCs (e.g., Parallel’s Colony, Today The Game) and spatial computing (Apple Vision Pro launching in February 2024)
• Bringing crypto primitives to multiplayer social gameplay (e.g., Otherside, Pixels)
• Taking advantage of recent advancements in onboarding and distribution to build casual mobile experiences (e.g., Sleepagotchi, Draw.Tech)

Pixels — a web3 farming game, reaching ~330k MAUs

Payments

Sending money globally continues to be difficult with a lack of affordable and user-friendly solutions. Payments leader PayPal announced its commitment to bringing payments on-chain for its 400 million active users, stating that “crypto gets us closer to what people desire: fast, cheap, global payments.” This is made possible by low fee blockchains that bring transactions down to fractions of a cent.

Beam, Sling Money, Code, Coinbase Wallet and other upstarts are tackling the opportunity to simplify payments with blockchain rails as the stablecoin market grows to a projected $3 trillion in the coming years (from $125 billion as of Aug. 2023). Given the core focus of these Web3 payment apps is similar, go-to-market advantages (whether in distribution, geography, or use cases) will be key.

Digi-Physical

Blockchain technology provides physical objects near-frictionless exchange, real-time provenance, global trade, and networked awareness.

Now that infrastructure has advanced to the point where crypto rails can be abstracted, brands have been leveraging blockchain and NFC chip technology to launch digi-physical experiences. For example, IYK’s platform has helped over 100 creators create immersive experiences that bridge the gap between the physical and digital worlds:

• Generative Goods’ one-of-a-kind physical crafts and home accessories link to generative NFT art
• Pudgy Penguins plush toys feature a QR code linking to an NFT that can be utilized in their upcoming metaverse game
• VÉRITÉ released a crewneck that allowed fans to gain early access to new songs and sign up for exclusive updates from her

I’m looking forward to more brands and creators experimenting with this new design space for consumer engagement and authenticity.

IYK’s platform for deploying digi-physical experiences

DePIN

As I previously wrote, consumers have an emerging role to play in powering the supply and demand of decentralized physical infrastructure networks (DePIN). We’re starting to see consumer products gain momentum on both the supply and demand sides of DePIN networks:

• Helium recently launched its 5G cellular service for $20/month and the opportunity to earn $MOBILE tokens by opting in to map the network. Since launching their beta in May 2023, over 34k subscribers have signed up.
• Leveraging $HONEY tokens, decentralized mapping network Hivemapper has incentivized over 36k contributors to map close to 7 million unique km (over 10% of the world’s roads) since Nov. 2022. Meanwhile, it took Google from 2007 to 2019 to collect 16.1 million kilometers of unique road data. By having consumers install Dashcams in their cars, they are able to provide fresher, more affordable mapping data based on the driving they do everyday.
• Over 400k consumers are sharing their unused Internet bandwith with Grass, a decentralized web scraping network focused on turning public web data into AI datasets.
• Free, decentralized WiFi OpenRoaming app Metablox has reached over 12k users.

I’m excited by DePIN consumer products that provide passive income for activities that consumers already do (e.g., driving, using the Internet) or offer cheaper and better options than incumbents.

Metablox’s app offering free, decentralized WiFi OpenRoaming

Loyalty

What started in 2020 with the NBA launching Top Shot on Flow, has turned into a tidal wave of Web3 brand efforts:

• Metaverse initiatives (e.g. Gucci launching an exhibition in The Sandbox)
• Digital collectibles (e.g., Nike selling digital Air Force 1 Lows)
• Digi-physical goods (e.g., Tiffany & Co selling NFTs redeemable for a physical pendant and chain)
• Engagement & rewards (e.g., Starbucks using NFTs in their loyalty program)
• Community & co-creation (e.g., Reddit engaging artist communities to help create its Collectible Avatars)

While loyal customers provide the highest value to brands, many loyalty programs today are broken — the average program has a redemption rate of only ~14%. As consumer interest in crypto picks up, we’ll see more brands build out cohesive Web3 strategies to develop deeper relationships with their community.

Further, startups such as Web3 restaurant loyalty app Blackbird and community engagement platform TYB are experimenting with building on-chain rewards networks across brands. I’m particularly excited about industry-specific solutions unlocking new fan experiences with fit-to-purpose offerings.

Just as every crypto cycle brings new apps and infrastructure, the past few years has seen the growth of the consumer crypto app stack — low fee blockchains, embedded wallets, and more. These advancements offer a catalyst for a new generation of apps.

If you’re building consumer apps or enabling infrastructure, my DMs are open!

Thanks to Derek Edws, Jesse Pollock, Henri Stern, Chris Maddern, Kyle McCollom, Shayon Sengupta, Mason Nystrom, Jonathan King, Winnie Lau, Joan Kim, Emery Andrew (Kado)” and many others for informing my thinking for this piece.

Disclosure: Collab+Currency is an investor in projects mentioned above, including Art Blocks, SuperRare, NFTfi, Blur, Floor, Gallery, Metaplex, DRiP, Solana, Polygon, Arbitrum, POAP, Kado, Rabbithole, Blaze, Sound, Flame, Azuki, Parallel, Axie Infinity, Sleepagotchi, Otherside, Pixels, IYK, Generative Goods, Eco, and Metablox. At the time of this publication, Collab+Currency or its members may have exposure to the assets described in this article.

The above material and content is educational in nature and should not be considered to be a recommendation to invest in a digital asset. Investing in digital assets, NFTs or cryptocurrency (collectively “digital assets”) is highly speculative and volatile, and digital assets are only suitable for investors who are willing to bear the risk of loss and experience sharp drawdown. Past performance is not indicative of future results. Any forward looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict.

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