The State of Decentralized Applications (dApps)
The Web3 narrative paints a picture of a blockchain-based next-generation Internet. As a16z’s Chris Dixon puts it, Web3 is “owned by builders and users, coordinated with tokens”. In Web3, power is decentralized through protection of user data, transparency of on-chain transactions, and token-based governance. In terms of products, decentralization refers to the point where applications can run autonomously through the use of blockchains, smart contracts, and the integration of decentralized infrastructure. ¹
While the utopian Web3 narrative is far from reality, past cryptocurrency cycles have driven the development of infrastructure such as wallets, smart contract networks, stablecoins, and middleware, enabling decentralized finance (defi), non-homogeneous generation Use cases such as coins (NFTs) and the Metaverse become possible. Web3’s product architecture typically leverages existing infrastructure projects as functional modules (e.g., EPNS for push notifications), while building unique capabilities internally to create protocol stacks with new emergent properties².
A Simple Guide to the Web3 Stack
For a product to achieve its full value, it must be powerful, reliable and easy to use. Given the technical limitations of current blockchains relative to servers, high latency, low computational throughput, poor global accessibility³, and the risk of being exploited are all costs of decentralization. Additionally, even the most prestigious Web3 products face risks from exploits, outages, and bugs that are more costly and more frequent than Web2. Vulnerabilities in any underlying infrastructure module in the protocol stack can potentially impact their integration partners. As adoption continues, builders will intuitively find innovative solutions, or trade-offs, to balance the spirit of decentralization with the creation of reliable, functional products at scale.
Not everything needs to be decentralized. Not everything needs Web3. As we move through the hustle and bustle of going through a bull market, under the sun of cryptocurrencies, everything is being pumped into a lot of capital, and these are the two conclusions most people come to.
The basic question is:
- How do builders assess which use cases for blockchain technology offer great value relative to the next best alternative?
- How can the team deliver a functionally reliable product while maintaining the spirit of decentralization?
- To what extent does the product building philosophy of Web2 apply to Web3?
The Emergence of “SaaS” in Web3
As the picture shows, when a new technology emerges, initial expectations are overblown, and this disillusionment must be tempered with ideals before builders can truly understand the nuances of how best to use it. Bull markets have injected massive amounts of liquidity into cryptocurrencies, fueled the wildest dreams of builders, and pushed the boundaries of Web3, while bear markets have revealed use cases that truly create value and stifled the rest.
The blockchain’s inherent tokens allow for permissionless, trustless transfer of value, thereby incentivizing stakeholders such as teams, investors, and project communities. Naturally, decentralized finance was one of the first use cases to gain a lot of attention, especially during the 2017 bull run. Additionally, blockchain and smart contracts provide a transparent, immutable database and computational layer. Expectations, capital infusions, and influx of entrepreneurial talent are at all-time highs in recent cycles, pushing use cases such as decentralized storage, gamefi, decentralized identity, DAOs, scaling solutions and tools into the spotlight.
In a recent article, Where to use a blockchain in non-financial applications? , Vitalik discusses the value of blockchain, especially in terms of interoperability and account management. Interoperability with other blockchain applications reduces complexity and cost for developers. “The main value provided on-chain is being in the same place as the things you’re interacting with that need a blockchain for other reasons.” Governance, certification, reputation/credit, measuring decentralization and open source metrics driven by social graph algorithms, etc. Additionally, a decentralized identity protocol can serve as an account management system that is transparent, immutable, publicly verifiable, and interoperable across ecosystems.
The variety of products makes Web3 feel like a Wild West version of the Internet, rather than a pure financial platform. For building non-defined end-user applications, blockchain computing allows builders to deploy and maintain backends independent of user needs with low operational overhead, defeating expensive subscription models, while paying less for users (though still paying for gas). fee)⁴. Some applications feel like versions of traditional saas with the added benefit of being based on a blockchain-based backend, while others are completely new solutions for Web3-specific scenarios⁵.
Organizing Lego: The State of DAO Tools
So, who are the users of these Web3 applications? Are they competing for Web2 users, or is Web3 scaling enough to sustain their growth? As the runway tightens, we’ll see who the speculative VC assets are and who will grow into the cornerstones of the Web3 space.
Incentive structure, business model, scale operation
“Tokens allow network participants to unite and work toward a common goal—to advance the network and enable the token to appreciate in value.” (Chris Dixon, a16z, source). In centralized networks, in order to maintain scale, companies are encouraged to compete with users and partners to accumulate value. In Web3, attention is a scarce resource, and the participating community is an asset that will support projects by buying and holding their tokens and participating in governance.
The playbook for the Web3 business model has yet to be written. For most projects, crypto degens, decentralization-maxis, and DAOs are not currently a big enough market to support sustainable cash flow. Some projects charge platform fees, others are optimized for growth while relying on investors to float until the token is launched. At the end of the day, no matter how progressively decentralized⁶, these are businesses that pay for their teams and management. Relying on a token issued by a project with negligible revenue as a business model seems to be at odds with traditional business fundamentals. As the regulatory environment becomes more relaxed, we should see token models that capture value more efficiently.
In terms of scale, high user friction (wallets, gas fees, bridging, etc.) and lack of user education are bottlenecks for Web3 user onboarding. As these issues are resolved, projects scramble to acquire and retain the new participants pouring into their communities with a smooth, intuitive user experience. On the other hand, as the next million players join Web3, so does the risk and the pressure on the product technology stack. Founders must be prepared to adapt, as tech stack failure is inevitable.
To ensure availability at scale, the next generation of “Web 2.5” decentralized applications is emerging. These applications utilize blockchain technology while often relying heavily on servers. For example, integrating private-public key wallets for logging in and encrypting user data may help solve many Web2 problems, such as endless usernames and passwords, and identity fraud. Furthermore, case studies like OpenSea show that while relying on a centralized server carries risks, users simply don’t care.
Case Study: EthSign
EthSign is building an interface between Web2 and Web3 to facilitate trustless protocols by connecting legally binding contracts and smart contracts. The following is adapted from an interview with Jack Xu, co-founder and head of technology at EthSign and a blockchain lecturer at the University of Southern California.
What is EthSign? What does its product do?
EthSign Signatures is the first protocol signing platform built on Web3. We provide the same functionality, user experience and legal force as the Web2.0 e-signature platform, while leveraging the power of blockchain to increase transparency and security.
As for our secondary product, let’s dive into what the protocol really means. Signing a contract indicates the signatory’s intent and agreement to maintain the terms of the agreement; the signatories trust each other to perform their duties. In the event of a dispute, the signatories trust the legal jurisdiction to reach a just solution. Signing agreements on-chain with EthSign enables trustless agreements, and smart contract templates can enforce certain agreement terms.
Given the limitations of on-chain executable content, we are building products to serve specific scenarios. The first is TokenTable: a token management platform that enables Web3 projects to execute fundraising transactions and automatically distribute tokens to investors and team members.
What inspired the team to build end-user applications?
We see an opportunity in the maturity of the Web3 infrastructure, low-cost decentralized computing and emerging decentralized storage possibilities based on Ethereum, to build more complex, user-facing applications. In 2019, the goal of our first hackathon iteration was to provide users with an application that can perform a common task with a Web2-level user experience, while also protecting user identities and data.
What is the Technology Stack for Assign Signing?
EthSign Signature 4.0 Tech Stack
First, dDApps run their backends on a decentralized network of smart contracts instead of centralized servers. The front end is the user interface that calls the back end based on the user’s actions. Users log into our frontend through their wallets or social media; we use ENS to allow users to map identities (.eth domains) to addresses. Users can sign documents with their private keys to capture intent and consent, and the signatures and associated metadata are stored on-chain on Polygon and Arweave.
How does EthSign reconcile decentralization and functionality?
In previous versions, we strived for maximum decentralization. Outside of North America and Europe, sporadic glitches and poor accessibility have caused us enormous trouble, forcing us to rethink our approach. A fully decentralized architecture is not ready for production. EthSign signatures take a practical approach to decentralization, maximizing usability while preserving decentralization. This looks like hosting web content statically on AWS to improve accessibility, while running on logic and contract storage in a decentralized fashion.
How does EthSign build a Web2 level user experience?
First, users can access EthSign without requiring tokens for gas fees or using a crypto wallet. We integrated Web3 Auth and Biconomy. The former allows users to generate Web3 identities and log into dApps using email, Google, Discord, and other social handles. Biconomy’s gas-free meta-transactions allow EthSign to create custom logic to sponsor gas fees for certain transactions; users do not have to hold ERC 20 tokens to pay gas fees when signing documents.
Second, EthSign Signature’s feature set replicates the full Web2 electronic signature experience. We have an expanded set of PDF annotation and text fields. Users can define the order of signing between co-signers. Tooltips help improve usability. Emails can be linked to wallet addresses via the profile settings page. Push notifications are integrated through EPNS and Blockscan chat.
Third, we innovate blockchain-enabled e-signature user experience elements such as keyless encryption, which enables local encryption and decryption from the user’s private key. This means that protected files can only be unlocked by an approved recipient’s wallet, not by anyone holding the password. Additionally, all files are permanently stored on-chain and transactions are publicly verifiable through our verification tools. We even tested an on-chain subscription model using NFTs, giving holders gas-free transactions within a set time frame.
Finally, implementing front-end details such as loading animations, tooltips, data caching to allow auto-save, hover states, dropdowns, and state popups all help create a familiar user experience.
What are the related technical challenges faced when developing blockchain applications?
Web3 is a nascent space; many scenarios lack robust documentation, development requires the creation of novel methodologies, and human intuition is not always correct. Foreword, developers write source code (using Solidity for Ethereum smart contracts), compile it into computer-readable code, deploy it, and then deploy and run it on-chain. Some notable obstacles include:
- Solidity development is like a black box that you can’t peer into. There is no way to pause your code execution to check the value of a variable, which makes debugging more tedious relative to Web2. Development environments like Hardhat and testnet provide some partial solutions to this problem.
- Solidity has a limit on the number of variables a function can have; if the number of variables exceeds the limit, the source code will not compile. So developers have to divide some functions into multiple ones, which is sometimes difficult to solve.
With constant success and failure, Web3 builders are continually improving their framework to assess how dApps can best leverage blockchain technology to create the most value for their communities. As the decentralized internet grows, user-facing dApps will take their place by granting people true ownership of their identities and data and the applications they use.
These dApps can’t work without user engagement, feedback, and dedication, so get out there and explore Web3! Don’t be shy about breaking the status quo or challenging others, identifying what doesn’t work is the best way to find what works!
If you have any questions or comments related to this article, please contact us.
Ethan Lippman, Twitter @lippmanethan
 This article will discuss decentralization as it pertains to product architecture rather than the decentralized governance of projects.
 For a comprehensive overview of the Web3 stack, see Multicoin’s 2019 article. https://multicoin.capital/2019/12/13/the-web3-stack-2019-edition/
 It is related to the geographic location of the physical node relative to the user.
 The cost of overhead depends on whether the project charges users a platform fee. For example, EthSign (case study below) pays ~$2 for 10,000 queries using The Graph and has no platform fees.
 Some examples of saas-esque projects include Dework (Trello + bounties) https://dework.xyz/, Clarity (Notion) https://www.clarity.so/, EthSign (Docusign) https://www .ethsign.xyz/, Metamail (email) https://metamail.ink/login, LiquiFi/Magna (Carta) https://www.liquifi.finance/ https://www.magna.so/ , Juicebox ( Kickstarter) https://juicebox.money/, Mirror (Medium) https://mirror.xyz/, and more local solutions like Utopia Labs (backend management for DAO) https://www.utopialabs.com/ , Syndicate (a tool for investment clubs) https://syndicate.io/
 The process by which the founding team gradually relinquishes control, diluting ownership and control of the project to token holders over time. https://a16z.com/2020/01/09/progressive-decentralization-crypto-product-management/
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/product-principles-for-non-financial-decentralized-applications/
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