Lattice Capital: Three challenges and three strategies for Web3 growth

Note: The original text is from Lattice Capital, and the following is the full text compilation.

In the past 12 months, people’s interest in Web3 has shown explosive growth. NBA superstars are paying six-figure fees for NFTs and proudly showcase them. OpenSea’s transaction volume is larger than Etsy. The world’s fastest growing ‌game ixuo runs on Ethereum. Although this surge in interest has pushed new users into this space, the use of cryptocurrency products pales in comparison with predecessors.

There are hundreds of Web2 applications and games with more than 10 million monthly active users-and Metamask�?is the only Web3 application of this scale. We believe that the rebirth of the Web3 growth strategy is the main reason why these applications are difficult to expand. The Web2 company has a decade of successful growth strategy to learn from, and a rich platform ecosystem can be used, while the Web3 project starts from scratch.

Web3 applications support decentralized architecture, anonymity, and user ownership of data. The core principles of Web3 break every mainstream growth strategy. Leading Web2 consumer applications reach large-scale by leveraging centralized platforms (such as Facebook), bringing identities online to generate trust, and having large-scale proprietary data sets. The Web3 application has no app store, no knowledge of who the user is, and no way to communicate with them.

If Web3 is to successfully build an Internet managed by an open, community-controlled service, then entrepreneurs need new growth strategies. Web3 needs a new growth game manual.

Challenges and opportunities for Web3 growth

Lattice Capital: Three challenges and three strategies for Web3 growth

Web3 applications face three basic challenges in developing and attracting user groups.


Most Web2 growth strategies start with the assumption that (potential) customers are known. Viral growth usually occurs on platforms that build social graphs based on IRL identities. Paid growth requires knowing your user information so that you can build a target profile. Many multi-billion dollar companies are built to help companies do this effectively. However, Web3 breaks this assumption, because the vast majority of current on-chain activities are conducted anonymously.

The Ethereum domain name service is growing rapidly and makes the Ethereum wallet-the main “account” currently in the crypto space-easier to read. Ceramic�?and other DID vendors are also working to establish a consistent account model for Web3.

At the same time, regulatory pressure and institutional interest are helping to promote the adoption of “whitelisted” DeFi products, which are less anonymous than their predecessors. Maple recently launched a “permitted” lending pool that requires participants to pass KYC. Violet is solving this problem in a more general way by establishing an identity protocol to bring off-chain identities to Ethereum.

At the same time, other projects are trying to establish on-chain identities in a bottom-up manner, rather than bringing offline data to the chain. Galaxy is building an encrypted native identity solution that uses users’ on-chain behavior to build their files. ARCx has launched a “DeFi Passport”, which gives corresponding credit scores based on users’ activities on the chain.


Web2 companies use Facebook ads to reach new users, use email to reactivate lost customers, and use push notifications to tell users about new products. (But for Web3) There are currently no widely used encryption native growth tools, which poses a major obstacle to the team’s establishment of an effective growth closed loop.

Web3 communication tools are more nascent than identification tools, but there are some teams that are building encrypted native solutions. The Ethereum Push Notification Service is developing a protocol that will generate mobile push notifications based on on-chain activities. CyberConnect and other companies are working on decentralized social graphs that can power social networks owned by users.

In addition, other companies are also taking different approaches to integrate Web3 into existing communication tools. Collab Land allows Discord servers to set entry barriers based on the token balance in the user’s Ethereum wallet. Lit Protocol is building a decentralized access control platform that uses tokens or NFTs to manage content, software, and data.

Platform restrictions

In the context of the large-scale paradigm shift of the Internet, the field of encryption is often compared to mobile products. We believe that this comparison also helps to think about the size of the market. All mobile products are platform dependent-for example, if you are making a mobile meditation application, then your addressable market will be limited by the number of installed Android and iOS phones. Given that almost every adult on the planet has a smartphone, this “restriction” is largely theoretical.

Web3 products have more practical limitations because they are restricted by the installed base of cryptocurrency wallets. If you build a DeFi application on Ethereum, your instantly resolvable market is defined by approximately 25 million people who actively use Ethereum wallets (although this is growing rapidly).

We are beginning to see some products that can expand the market beyond the current installed base. Some products achieve this goal through an abstract wallet experience, so they can reach audiences who may not care about controlling their private keys. Dapper has made NBA Top Shot one of the most widely used Web3 applications by simplifying the concept of blockchain. Everbloom is using a similar approach to achieve a mobile-first NFT experience, and we believe this will prepare them for real mainstream applications.

Other products are bypassing current platform restrictions by making new audiences excited about blockchain-based products. For example, Helium has reached an installed base of more than 350,000 by getting people excited about mesh networks and their hotspot revenue potential (rather than the fact that they run on the blockchain). We believe that DIMO will add a similar large audience of car enthusiasts to Web3.

In addition, there is the last category of products to make more people excited about encryption itself. CoinList and Coinbase provide centralized products that encourage people to try Web3 products. Rabbithole has done a good job in getting new users into Web3 in an encrypted native way, and Galaxy has done a good job in getting the community to use new products. At the same time, applications like Layer3 are making it easier for people to start making money in Web3.

Web3 growth strategy

Lattice Capital: Three challenges and three strategies for Web3 growth

Partnerships, user ownership, and token-driven growth pools are the pillars of Web3’s growth strategy

Cooperation and integration

The growth of software companies through large-scale BD transactions is not new, and many Web3 projects have also adopted this strategy. For example, ChainLink implemented the strategy of closing the partnership in the 2018-2019 bear market, and $LINK performed well as a result.

However, when these partnerships are negotiated transparently in a governance forum, rather than behind the door of a conference room, business development will look very different in Web3. Given that these integrations often do not require permission from one of the parties, they are not always mutually beneficial. For example, some platforms integrate Curve in ways that are not necessarily beneficial to Curve itself.

A few examples of Web3 partnership categories:

  • Token Utility-Projects with native tokens want to make it as useful as possible. This may include exchange listings, collateral listings (such as adding $LINK to Compound), or working with DEX to promote additional liquidity.
  • Distribution-All users interact with the DeFi protocol through wallets (Metamask, Rainbow) and more and more aggregators (Zapper, Zerion). These front-end interfaces control which protocols they show to users, so integrating your yield aggregator with your wallet can be a big deal.
  • Lego blocks-use another DeFi primitive to bring extra utility to your product. For example, Notional uses Compound to increase its effective revenue.
  • Merger-Recognizing that the two teams are building in similar directions and no longer have meaningful competition to promote the merger of the agreement, it is worth noting that Keep and NuCypher and Fei and Rari.

Given the increasing importance of partners/business development executives, we will begin to see priority in hiring them.

Liquidity Staking and Token Economics

In the past decade, as marketing has become more analytical and engineering driven, growth hackers have become very popular. Although growth hackers in Web2 have historically established an affordable and repeatable growth cycle, the focus of the crypto field is to use the project’s native tokens to drive the growth cycle.

Liquidity staking is a “network participation strategy in which users provide capital to the agreement in exchange for the original token of the agreement”. Just as venture capital funds help subsidize the market until they reach scale, the Web3 protocol can use its native token to guide their growth.

Encryption projects developed through the Token incentive mechanism face similar challenges as Web2 startups, which burned piles of funds in venture capital. The data clearly shows that the liquidity of most subsidies is highly marketable. As a result, we will begin to see more well-thought-out mobile collateral products, including OHM and Rift.


If Web2 companies focus on increasing user loyalty in the form of participation and retention, then Web3 companies focus on increasing user ownership. One of the most exciting and unique features of Web3 is “Users…fund the products, information and services they consume”. We are still very early in understanding all the downstream effects of this innovation.

We believe that the community is vital in the context of network growth, because participating communities will enable the network to leverage in everything they do. If you look at the tweets of projects with community involvement, this will be obvious-every announcement will have a lot of participation and reposts.

The community can replace or supplement the key stakeholders in the Web3 project:

  • Early customers (and cheerleaders)-Having a small group of avid customers is vital to any startup. And community members can play this role (or even more) because they are both early customers and have meaningful upside.
  • Make full use of the core team-community members can help with recruitment, token design, fundraising (things investors have always helped).
  • Expand the core team-community members can provide technical and non-technical support to the core team. Sometimes they will stand up and join the core team, other times it’s more like an accident.
  • Distribution-newly launched token projects hope to cooperate with other projects with large communities, just as new products hope to be distributed in channels with greater influence.

Although crypto Twitter and the crypto market are often attracted by the latest shiny toys, we are impressed by the teams and communities that continue to build even when the spotlight is off. We have seen first-hand information that some of the biggest successes in the industry did not happen overnight. Teams like Audius, Dune Analytics, OpenSea, and Terra worked for years before the spotlight fell on them. We hope to work with founders who have the same determination.

In an industry built on open source interoperable software, we believe that partnership and community are the only sustainable moat. We have spent many years helping to drive the growth plans of leading companies in this field, including Aztec, Celo, CoinList, Index Coop and Solana. After witnessing the challenges of the growth of encryption projects, we established Lattice.

Note: Lattice holds shares in CyberConnect, DIMO, Galaxy, Layer3, Lit, Maple, Rift and Violet. Lattice employees hold individual positions in ARCx, Audius, Dune Analytics, EPNS, LUNA, INDEX, Notification, Rabbithole and OpenSea.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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