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How does crypto grow to 100 million sticky users? Let's talk about stick relationships.

Updated: Apr 22

While crypto prices have shown remarkable resilience in the face of a 4.5% Fed’s Funds Rate, a US regulatory clampdown and a mini US banking crisis with the closure of Silvergate, Silicon Valley Bank and Signature Bank, crypto has yet to onboard the next 100 million sticky users who uses crypto applications daily in their everyday routine. What type of crypto applications are likely to achieve that. Let’s dive into the topic.


By the way, what crypto application do you think will onboard the next 100 million users? Subscribe and leave your comments below. Your input will help me write more research pieces.


Sticky Relationships


Once upon a time, I used to do sales and business development at luxury consumer brands. In order to close deals I needed two things:

  1. sales funnels that gave me leads

  2. sticky relationships with clients that gave me valuable real estate in their mindshare.

While building sales funnels is certainly an important part of revenue generation, it doesn’t work until there is nothing to attract the customers. Therefore I will focus on attracting and building direct and sticky relationships here. So as a brand/product/service how do you achieve sticky relationships with your clients/users/customers? By being front of mind, providing massive value and embedding your service/product in their everyday routine.

What are the current crypto applications that fit this profile? Well while there are countless crypto applications, we can broadly categorize them as one of the three followings - decentralized finance or DeFi, NFTs and crypto infrastructure. How well does each do when it comes to onboarding sticky mass users?


Decentralized Finance - Capital Magnate


DeFi has been an important growth engine for crypto adoption since its emergence in 2020. You can read more about DeFi protocols revenue generation in this crypto winter here in my previous article. Through applications such as decentralized exchange (DEX), liquid staking, perpetual swaps, overcollateralized borrowing and lending, DeFi has captured more than $48bil even in this crypto winter as you can see from the chart below. This number was over $200bil at the peak in 2021.



The top 10 protocols with the highest total value locked (TVL), for simplicity you can think of it as asset under management, command around $42bil collectively. Now just how many users do they have? While it is impossible to say exactly how many unique individual users are actively using these protocols, I use a combination of onchain data and data from DappRadar to look at the number of wallet addresses that have interacted with these protocols as a proxy. The actual user number will be a lot lower than the total wallet addresses but this will give us a sense of the upper bound of the possible range of user numbers. The data is summarized below:



A few observations:

  1. The three most popular applications on this list are all decentralized exchanges or DEXes, Uniswap, PancakeSwap and Curve, that serves the purpose of buy/selling tokens. The most familiar and arguably the simplest form of finance to most people. And if we want to be a little expansive in our categorization, both MakerDAO and Convex are adjacent and related to this DEX ecosystem through their minting of ETH backed stablecoin DAI and boosting Curve liquidity provision rewards respectively.

  2. The second most popular category belongs to staking applications, Lido and Coinbase Wrapped ETH, that abstract away the technical complexities and allow users to simply stake their ETH and earn a portion of network security rewards.

  3. The more complex applications of overcollateralized lending and borrowing, Aave and JustLend, and the monitoring and management of these lending and borrowing positions, Instadapp, round out the last three places in the top 10.

The theme is clear. Product simplicity tends to attract mass users.


Given DeFi’s financial nature and inherent complexity, users need to have a minimum level of financial literacy to navigate it. Imagine managing an option strategy without understanding the Greeks or managing liquidation risk of Aave borrow positions without understanding historical volatility of your collateral. While DeFi certainly is a hotbed for new and exciting composable financial primitives and will likely to onboard more capital as both crypto space grows and traditional finance gets onboarded, it requires a level of financial expertise that will exclude many average consumers whose life do not evolve around managing risk-adjusted returns.


Crypto Infrastructure - The Highway


Welcome to the technological backbone of the crypto ecosystem. This is the necessary highway infrastructure supporting various crypto commercial applications. Just like the civil engineering expertise required to build highways, the crypto infrastructure sectors, such as MEV (maximum extractable value), validator/node operation, and data availability, require a non-trivial amount of technical knowledge to participate.


Let’s look at two illustrative examples.




  1. Block building is a critical function of the execution layer (green part of the diagram) for Ethereum as it deals with transaction ordering and inclusion in a block. In general block builders have to juggle MEV challenges and ensuring a certain level of fairness for user transactions. The actual activity is carried out by algorithms and codes. Guess how many players there are in the block building space? Answer is 5. Blocknative along with Flashbots, Manifold, BloxRoute, and Eden. A quick browse of the people working at these teams tells you many are engineers, developers and researchers with maths and computer science background.

  2. A consensus client is a critical piece of software that takes block data from an execution client, ensures the data inside is valid and broadcasts this to rest of the network. Again there are only 5 highly technical teams in this space: Geth, Nethermind, Besu, Erigon and Akula. You will need an understanding of Ethereum node architecture, HTTP, JavaScript and command line just to get started.

Crypto infrastructures are highly technical and specialized fields that tend to consolidate talent and capital into a few successful players with high barriers of entry.

However there is a specific infrastructure piece that is captive and customer facing - the wallets, e.g. Metamask, Coinbase Wallet, Trust Wallet. Anyone who has self-custodied their assets before understands the need to have a wallet.



Wallets is a gateway for many people entering crypto for the first time. It is the first crypto app to download if you want to move the crypto you just purchased away from a centralized exchange like Binance or Coinbase and try your hands at various DeFi, social, gaming and NFT applications.



Wallets have become much more sophisticated to abstract away many technical complexities involved in using crypto applications. For example being able to buy/sell ETH straight from your wallet app means you no longer have to visit a DEX app as an extra step. Or being able to view your NFT as pictures in your wallet means you no longer have to visit Opensea or another marketplace. This simplification gives wallet providers the superpower to capture user activities, time and attention. According to this article, the most popular Ethereum based wallet, Metamask has crossed 30mil monthly user mark in 2022.

However, wallets themselves do not onboard users. It is the exciting utilities of crypto applications that attract users. Wallet is the user interface/gateway to that attraction. So what is something that can capture and retain people’s interest and attention?


NFTs - The Trojan Horse


Enter NFTs. I have to admit I didn’t see the value of NFTs when they first entered the mainstream crypto conversation in 2021. Yet after spending countless hours talking with superfans/collectors, artists and gallerists I have come to understand the importance and the power behind these JPEG pictures that serve as the front pages of NFTs.

By this I do not mean the financialized NFT trading game between early adopters, speculators and whales on NFT marketplaces such as OpenSea or Blur. Instead what is far more exciting for broader consumer adoption is the various possibilities NFTs unlock for web2 corporates that have hundreds of millions of customers worldwide.


The following are some examples of traditional web2 companies incorporating NFT in their game development, community engagement, loyalty program or fashion businesses to extend/enhance user experiences. Although this list is far from exhaustive, they offer a good cross-section view of the web2 NFT adoption experiments.


While the final definitive form of mass NFT utility is yet to be established, the fact these massive corporations with millions or billions of customers worldwide decided to dip their toes in NFT experiments means the possibility of mass consumer applications and/or that crypto/web3 is here to stay cannot be dismissed.


I will dive into each category of adoption in future writings but for now remember the keys to having sticky customers? Being top of mind and embedded into customer’s everyday routines. These corporations have already done the hard work to be top of the mind and inseparable parts of consumers’ life. Think Tiffany’s diamonds, Amazon’s marketplace, Christie’s auctions, Reddit’s millions of community users…


If any one of these experiments proves to be successful with consumers/users, then the more companies in that vertical is likely to follow the suite and adopt NFT into their customer acquisition, retention or engagement journeys.


While the numbers for DeFi and crypto wallet users may seem impressive, these pale in comparison to the billions of consumers that these corporates already command and can onboard. Just imagine if Starbuck’s Odyssey NFTs become a driving force behind Starbuck’s user engagement/retention process where each user can learn about the coffee production, selection and washing processes through the Starbucks app where upon completion of each step the user earns an NFT badge that unlocks an exclusive Starbucks superfan merchandise that she/he can trade in-app through a Starbucks NFT marketplace where Starbucks makes a 2% marketplace fee. This is but one possible implementation of NFT to ensure more touch-points/engagement between brands and consumers which is likely to lead to higher lifetime value for brands. The design space is wide open.


Conclusion


If you want to have a framework to think about crypto adoption in 2023 then here is what you need:

  1. Decentralized Finance (DeFi) verticals will onboard capital and integrate more and more with traditional finance

  2. NFT verticals will onboard mass consumers and integrate more and more with traditional companies

  3. Crypto Infrastructure pieces will build better and better highways for the above two verticals

If you are interested exploring various use cases of NFTs you can follow my NFT Markets podcast here.


If you are interested in following the tractions that are happening in DeFi you can follow my Crypto Startup Show podcast here.


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How do you think about crypto onboarding the next 100 million users or 100 billion in capital? Leave your comment below.

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