When Web3? Is web3 the right fit for your startup idea?

Blockchain, or Web3 as it's increasingly known, certainly makes for an intriguing landscape. Like myself, perhaps you arrived for the party and found it so engaging that you decided to stick around, even in the face of the inevitable hangover. I recently had an insightful chat with a former Marketing DAO member associated with a Layer-1 blockchain. Much like me, he was introspectively analyzing lessons learned from the previous bull run, all the while trying to carve out his place in the current bear market with his decentralised aspirations.

As community builders, we are reflective by nature and this commonality allowed us to share insights on how to rejuvenate participation using the lessons we've learned. A harsh reality check we had to confront was understanding that web3 isn’t always the right fit for every idea. After all, not every brilliant concept necessitates a blockchain backup, at least not at the beginning.

So, if not web3 now, then when? When should web3 be integrated into your startup idea? Here's my somewhat opinionated perspective, distilled from the numerous thoughts exchanged during our prolonged meetup.

It's crucial to note that DeFi is an industry, not merely a use case.

During the bull market's pinnacle, the hype was largely centred around new DeFi protocols. My experience includes serving as a senior leader/builder on two innovative teams in this sector. One team was developing a perpetual derivatives protocol on Arbitrum, while the other was working on a blockchain bridging and stablecoin basket protocol on Algorand. Despite periods of success, both protocols experienced their share of downturns, which puzzled me. The passion was there, the community was present, yet the impending signs of failure were left unaddressed for far too long. What went wrong?

The key to understanding this conundrum lies in accepting two truths. Firstly, the fundamentals advocated by Layer-1/2 blockchain technology (decentralisation, transparency, immutability, security and user-centric ownership) significantly disrupt our conventional perception of finance, thereby giving birth to "decentralised" finance (DeFi). Secondly, we often mistakenly regard DeFi as a use case rather than an industry when building new protocols. This leads us to lose sight of the pivotal question that should guide our innovation:

"Who is the user of what we're building, and what core problem are we solving for them that hasn't been addressed or is still inadequately resolved?”

This question intentionally omits any mention of Web3. This is because our initial focus should be on delineating the user journey to identify their needs and pain points. Doing so not only helps inform the product's development and eventual functionality but also cultivates a community of core users who are willing to provide valuable feedback. Only after establishing this community and a preliminary product prototype that addresses their pain points should we consider the following question:

“How can incorporating elements of a web3/blockchain tech stack enhance the product we're building and make it superior to preceding solutions?”

Postponing this question to a later stage makes it not only more relevant but also more inclusive. This is because you will now have a functional product prototype and a community of passionate users who can help you shape the product as you incorporate web3 technology in innovative ways. The gaming community's varied responses to the "When Web3?" question exemplify how multifaceted this process can be, and there's yet to be a universally accepted solution.

This ongoing debate is beneficial because Web3 and blockchain technology are still in their infancy. Projects aimed at enhancing user onboarding experiences, like account abstraction, or efforts to improve data privacy through zero-knowledge proofs, demonstrate this on a technical level. Concurrently, non-technical aspects, such as evolving business ownership models, are also undergoing a seismic shift as we move towards a user-owner product experience in line with Web3 principles.

It's essential to keep a close eye on community engagement as you navigate these changes. If the majority of your community becomes passive observers rather than active contributors, it may signal that it's not the right time to introduce a Web3 initiative.

This article doesn’t aim to provide all the answers but instead, hopes to provoke thoughtful questions. As I traverse this path with my current startup ideas, I hope to inspire a new generation of Web3 startups that can weather both bear and bull conditions more effectively than those of the previous cycle. By placing emphasis on sturdy business models and robust user communities, these startups can thrive in all economic climates.

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