Web3 Credentials: Crossing the Consumer Chasm
Market Opportunities in Web3 Consumer
Introduction
Everyone seems to be talking about Web3 credentials. This slightly-oddly-named category generally refers to products that store things like work history, identity data, or social activity on blockchains. POAPs are Ethereum-based digital stickers that you collect at events. CyberConnect, Farcaster, and Lens are decentralized social networks that offer user-owned profiles and social graphs. Galxe and Layer3 have built the two leading crypto marketing platforms that allow companies to reward their users with on-chain credentials.
Why are credentials hot all of a sudden? Influential industry leaders like Vitalik Buterin have started to publicly focus on them. Crypto thought leaders are looking for a new narrative and crypto social seems to be a leading candidate. Credentialing products are also starting to find product-market-fit. Galxe’s Optimism campaign is the largest fee generator on the protocol. More than 1M people have minted POAP’s.
Products leveraging Web3 credentials can be the consumer category that breaks out and crosses the chasm. Writing all social and professional credentials onto a single, open database is a massive innovation unlock. Replacing email logins with wallets can provide applications with more context on their users, thereby creating richer user experiences. As always, the biggest challenge is finding a killer use case that resonates with a large audience.
In this essay I explore market opportunities for consumer apps leveraging Web3 credentials. I start with an overview of Web3 credentials and why I’m so excited about them. I then cover what’s working in the category and where future opportunities may lie.
An Overview of Web3 Credentials
Web3 credentials are so interesting because they’re a technical innovation that opens up a huge design space and has cultural tailwinds behind them. The backlash against large tech companies will help drive the adoption of user owned (self-sovereign) identity data. Meanwhile, bringing disparate identity data, social activity, and professional history into a single open database will enable rapid innovation and new experiences. Bringing credentials on-chain also fundamentally improves their underlying characteristics by making them composable and verifiable. There’s a lot to be excited about.
There are meaningful cultural tailwinds that will drive the adoption of self-sovereign identity. Self-sovereign identity means that users have ownership of their data and can control access to it. Consumers are incredibly concerned about the drawbacks of current approaches to online identity data are front and center today. Enterprises are also starting to recognize potential security and privacy benefits.
On-chain credentials create an enormous design space for new experiences and will foster a huge amount of innovation in stagnant markets. Current credentialing products generally trend towards monopolies. For example, LinkedIn has a near dominant position amongst white-collar workers in the U.S. The company’s rich social graph provides a meaningful data moat.
Making social graphs portable will increase competition amongst social networks. If any user could take their profile and social connections from LinkedIn and move them to a competitive professional networking product, it would clearly be easier for competitors to emerge. As Ben Thompson has written, “…[Look at] Instagram and Meerkat…we already have evidence about just how powerful it is when a service lets its social graph be exported…”
The fundamental characteristics of Web3 credentials are also superior to what exists today. To start, they are composable. This means that a job promotion stored on-chain can be leveraged by any professional networking site. Shifting the primary user account model from email/password to wallet also enables new consumer experiences. Now users can instantly share their full social graphs with any application. Developers immediately have more context on their users. For example, Paragraph currently provides users with newsletters recommendations based on their Farcaster social graph. In the future, they could tap into the social graph of any Web3 social product.
Mazury is an example of how this works in practice. Mazury is an emerging web3 talent marketplace that hosts profiles for web3 developers. They use an Ethereum or ENS address as a unique identifier and already leverage more than half a dozen credentials as building blocks including 101 (classes completed), GitPOAP (code commits), and POAPs (developer meetups).
It’s worth touching on the dominant model for issuing these credentials as I believe it will shift over the medium term. Today most of these credentials are simply stored on-chain as NFT’s. These NFT’s are often non-transferable and hence referred to as soulbound tokens (SBT’s). This approach is instantly composable and does not require much in the way of specialized infrastructure, but it has real drawbacks. The privacy issues are obvious - storing a bunch of personal information on a public database is a nonstarter for many users.
Disco has been driving a hybrid approach to Web3 credentials where credentials are signed by an Ethereum address* but stored off chain (*technically DIDs are an alias for an Ethereum address but let’s keep it simple). This allows users to selectively reveal those credentials but have them private by default. Disco is built on top of VCs (verifiable credentials) + DIDs (decentralized identifier). There are unanswered questions about how this design approach impacts composability, but I believe it’s a solvable problem.
What’s Working in Web3 Consumer
Two of the biggest categories in Web3 consumer today are marketing tools and social products. Web3 companies need ways to reach new users (and reward existing ones) and many have turned to issuing on-chain credentials as a way to do this. Galaxe is the largest of these marketing infrastructure companies that have become a crucial piece of the web3 growth stack. Web3 social products have also started to find early product-market-fit. Social products that are fun in ‘single player’ mode like POAP have been early breakouts.
Web3 Marketing
The Web3 growth stack remains nascent. In an industry where communication and identity are still in their infancy, traditional marketing software simply doesn’t work. Rewarding users with credentials (often NFT’s) has provided Web3 companies with a much-needed growth tool. Dozens of the top projects in the space have turned to Galxe’s credentialing infrastructure. For example, Hashflow used Galxe to distribute limited edition NFTs to early users. More than 20K users minted these NFT’s and this strong engagement helped Hashflow quickly cross $250M in trading volume.
Layer3 and Rabbithole have also built large businesses helping to fill in the Web3 growth stack. More than 100k users come to Layer3 each month to explore ‘quests’ where they learn and try new Web3 products. This gamified Web3 onboarding experience rewards users in Layer3’s ‘XP’ rather than NFT’s. In the future I expect these companies to go deeper down the Web3 identity stack. Galxe is already trying to do this with Galxe ID.
Social Products
As controversy surrounding traditional social networks has grown, the appeal of user-owned social profiles and graphs that are portable across networks has gained steam. So far the most popular social products are ‘single player’ in that they’re fun even without a huge network on them.
ENS (Ethereum Name Service) provides human readable domains (eg johndoe.eth) that sit on top of Ethereum addresses. The product sounds simple but it's a core piece of infrastructure that meaningfully improves the user experience of all other Web3 consumer products. An increasing number of social products like Phi use ENS domains as their core account unit. Nearly 600K users have claimed 2.7M+ ENS domains.
POAPs are NFT’s that people can collect to prove they attended an event. Similar to the original Foursquare, people check in and collect a digital sticker. The experience of collecting these digital stickers is genuinely fun and beloved by the crypto community. They’ve also closed partnerships with large brands. While currently primarily a single player product, there is a growing ecosystem of social apps like Pearl built on top of POAP.
Web3 social networks are still nascent but starting to see some solid usage. The two market leaders are Lens and Farcaster. Today both offer similar experiences to Twitter, but with most data including profiles and social graphs being user owned. Both have visions of being protocols with third-party clients powering most front ends, which would offer users a variety of different experiences.
Common Threads
What can we glean from what has worked so far in Web3 credentials?
Financialization can help bootstrap growth. Galxe has embraced the ‘learn to/and earn’ narrative and the results speak for themselves. Embracing financialization should be done thoughtfully or it can backfire - users need to have something to do with an application besides earning money.
Single player apps will break out first. The current leading social apps are all fun even if you don’t have a huge network there. ENS makes transacting on Ethereum easier. You can share Mirror articles on Twitter. Even POAPs are still fun to display by yourself. None require huge networks.
A wedge in the market is crucial. Layer3 has identified an immediate market need (sustainable marketing for crypto projects) and scaled very quickly as a result. Projects that offer credentials without serving a clear market need will flounder.
Make things fun.Most successful consumer apps serve one of the seven deadly sins. POAPs, like its predecessor Foursquare, taps into pride by allowing people to broadcast that they were at that cool restaurant/cocktail bar/crypto meetup (ok maybe the last one is an oxymoron).
Market Opportunities in Web3 Consumer
The most successful Web3 consumer apps will leverage the unique characteristics of Web3 credentials to meet a specific market need. Those that don’t meet both of these criteria will flounder. DeSo was ahead of the curve in Web3 social and raised $200M in late 2021 to build a Web3 social network. They decided roll their own blockchain, sacrificing composability in the process. Unsurprisingly, traction has been lackluster. Teams that take the ‘build it and they will come’ approach will face tough market realities.
Monetizing User Owned Data
While our personal data is monetized by third parties (often without our permission) today, Web3 offers the promise of users doing it themselves. This narrative is 100x more powerful than any philosophical Web3 diatribes. Financial upside is interesting to people and if Web3 offers it, adoption will follow.
Multicoin has popularized the DataDAO thesis, which describes cooperatives that “harness user-owned data to 1) achieve some greater benefit, and 2) share those benefits with the user who contributed the data.” Delphia (a Multicoin investment) is one of the pioneers in this space. Delphia is betting that users will contribute commerce and social media data to Delphia’s quant hedge fund in exchange for payment. This value transfer already happens today, but hedge funds bypass consumers when they buy their data from third parties.
Token incentivized physical infrastructure networks are another area where users are benefiting from monetizing their data directly. DIMO is an open data marketplace where users can monetize their vehicle data. Users connect their vehicles to the DIMO marketplace and then earn rewards as their data is consumed.
E-commerce And Brand Loyalty
While most Web3 experiments at large brands have have fizzled out, Starbucks and a few other corporate true believers plow forward. Realistically, the push here will come from smaller brands. Wallets as a new account model can also create new commerce experiences. Token-gated commerce can instantly personalize shopping experiences to you based on what’s in your wallet. Uber smart Shopify VP Alex Danco has a bunch of great ideas on Web3 e-commerce in this article.
Web3 enabled brand loyalty programs are also an interesting design space. These ‘open loyalty’ programs allow brands to engage across partner brands and enable secondary markets for rewards. TYB is helping DTC brands engage their customers and allow them to contribute to overall brand strategy and product development. Toki is working with a similar customer set on token-powered loyalty programs that can go across brands.
Phygital Experiences
Phygital/physi-digital/IRL+digital - whatever you want to call it, people are building some really cool products at the intersection of physical and digital experiences. One interesting trend is the issuance of NFT’s as digital receipts whereby you get the ‘digital twin’ of an item when you buy it IRL. Endstate is an example, selling digital NFT sneakers that are redeemable for an identical physical pair.
Connecting physical items to the digital world can help with counterfeiting. 4K allows people to easily mint NFT’s that digitally represent physical objects. If you’re trading sneakers to make some cash and don’t care about wearing them, there’s no reason to physically settle those trades. 4K offers infrastructure to securely custody and verify things like high end sneakers and watches.
NFT’s can also solidify the relationship between consumers and brands or creators. Verite is a rising singer who has built some cutting edge connected merchandise. Her latest drop is a shirt paired with an NFT, which unlocks early access to her new album and exclusive footage. She leverages IYK’s technology, which embeds a small NFC chip in the shirt that allows you to seamlessly mint an NFT proving ownership. I think that tying digital experiences to physical goods is an incredibly exciting design space for the industry.
Crypto entrepreneur gmoney is at the forefront of unique consumer experiences enabled by Web3. Last year gmoney launched Admit One, a collection of 1000 NFT’s that functioned as access passes to his community and gave holders early access to his future drops. NFT-gated membership is not new, but gmoney’s use of his IRL network was unique. gmoney reserved 70% of Admit One NFTs for people who had been to his early events. I got a beer with gmoney last February at ETH Denver and tapped my iPhone on his POAP card to mint a POAP showing that I’d hung out with him at the conference. Since POAPs and Admit One NFT’s both settle on Ethereum, he was able to seamlessly prioritize his early community. He has since continued to innovate in this category. At Art Basel, Admit One NFT holders were able to redeem physical ITERATION-02 t-shirts. (Note - I forgot to mint a free Admit One NFT meaning that beer cost a cool $5K)
Verticalized Social Products
Imagine if Twitter were split in two - a company running Twitter’s core service (including the social graph) and a company running other apps and the advertising business. Twitter’s API would be open and any company that wanted to build its own client could do so. You could build an NBA Twitter client that only showed NBA content and was optimized for short highlight reels. You could also build a politics Twitter client, optimized around breaking news and text. It’s a powerful vision that Ben Thompson lays out more articulately than I ever could.
This is part of what makes me so excited about decentralized social. Decentralized social networks are generally neutral protocols that support third party clients. Farcaster is super nascent but there are already dozens of clients built on top that offer very different experiences for ingesting content. For example, Launchcaster is a client that solely focused on surfacing interesting product launches from Farcaster.
The most interesting opportunity in Web3 social is in verticalized social products that serve a specific audience better than generalized products ever could. For example, Strava has built a cult following amongst runners and bikers. However, they’ve struggled with monetization and have had to build their own social graph. Web3 is not a magic built for them, but it opens up market opportunities by allowing teams to build on top of existing social graphs and introduces some novel monetization mechanisms.
Wallets (or Wallet Replacements)
Wallet onboarding puts a low ceiling on the addressable market for most crypto products. As my friend Mercedes writes, “Wallets are to crypto as email was to the first era of the Internet. They’re our connection, our single-sign on service, and authentication method for the crypto-native world. But these products aren’t mass consumer-grade products yet.” Today most crypto companies make the choice to try to expand their addressable market or just target the audience of Metamask MAU’s. The former is very hard, so most people choose the latter.
There is a big opportunity to build wallets that better onboard consumers. Few wallets today prioritize highlighting credentials or social activity. As an example, there’s likely an opportunity for a social wallet that has a mobile Farcaster client as its home screen. Account abstraction, which makes wallets much more flexible, will likely be widely used in crypto soon (see ERC4337). Account abstraction enables wallets to offer a gas-free UX and have flexible signing parameters, among other things.
There is an equally large - if not larger - opportunity to totally abstract away crypto wallets as the primary login model for Web3 apps. Stardust has built some really cool onboarding infrastructure for games that helps game developers abstract away things like seed phrases. I’d love to see more companies working on this approach for other verticals.
Infrastructure
For Web3 consumer apps to scale, we’ll need to figure out how to securely store private data, while also making it easily accessible and composable. Luckily, there are a bunch of really talented teams working on core parts of this infrastructure. Ceramic is building infrastructure to make storing this data simple. Meanwhile, Disco is pioneering a ‘data backpack’ model that makes it easy for consumers to access their data and use it throughout Web3. Lit Protocol is making it easy for apps to encrypt data based on on-chain conditions (such as what a user has in their wallet).
However, we’ll need a lot more infrastructure to get Web3 consumer apps to scale. There is a huge design space to make it easier to use DIDs/VCs and integrate them into the rest of Web3. Leveraging Web2 credentials and social graphs and figuring out ways to integrate them into Web3 is also an area ripe with opportunity.
Zero-Knowledge Proofs
Zero-knowledge proofs. ZKPs. SNARKs. STARKs. Everyone is excited about this complex math that (supposedly) has large commercial applications. Zero-knowledge proofs essentially let you prove that you know or have something without disclosing what you know or have. My friend Jill Carlson wrote a great explainer if you want to learn more.
ZKP’s will allow consumers to share information with apps in a more streamlined and private manner. Every fintech app (including crypto exchanges) requires users to upload the same information - it’s a huge pain in the ass. It’s also not secure - at this point I’d be amazed if my driver’s license wasn’t for sale in some darkweb bazaar. Leveraging ZKP’s could meaningfully improve the onboarding process for these apps. In theory I could store any relevant personal information in an encrypted manner and selectively reveal it with a single wallet signature. I could also fulfill compliance requirements through ZKPs (eg “has a valid driver’s license) without actually sharing that identity document.
The Path Ahead for Web3 Consumer Products
There is a huge opportunity for products that leverage Web3 credentials to create new consumer experiences. Cultural tailwinds are pushing users to look for alternatives to mainstream social products. One or two breakout apps will create a flywheel that will elevate every other product - more wallets, more on-chain data, more general interest. I’m excited.
I’ve listed some areas that I think are ripe for development, but there is definitely a much bigger market in areas I haven’t mentioned. Consumer products leveraging credentials are interesting because there are so many applications - social networks, consumer finance apps, professional profiles. Entrepreneurs who find a sharp wedge into an initial market and remain laser focused on solving consumer problems will have the best shot at building the next generation of breakout consumer Web3 products.
If you’re building something interesting in this space, I’d love to chat - regan[at]lattice.fund
This is not legal or financial advice. Lattice is an investor in Cyberconnect, Delphia, DIMO, Galxe, IYK, Layer3, Lit, POAP, and Stardust. I’m a personal investor in Hashflow, Rabbithole, and Toki.