Darren Kleine

The “freemium” model — where basic app features are free but users unlock more features with payments — has been enormously successful in the Web2 world for years.



Even so, most freemium apps only convert between <a href="https://www.toplyne.io/blog/everything-you-need-to-know-about-freemium-conversion-rates-benchmarks-tips-more">2-5%</a> of users into paying customers, with the rest of the crowd keeping their credit cards tucked neatly in their wallets. Essentially, Web2 apps find a “product market fit” and gather up a massive user base first, figuring out the money side of the equation after everybody has arrived on the scene.



<a href="https://blockworks.co/tag/web3">Web3</a> apps often take the opposite approach, starting with monetization as the first step. This makes the barrier to entry considerably more significant, but once users get over the monetary hump, the average revenue per user can be far greater than the legacy model.



On the Lightspeed podcast (<a href="https://open.spotify.com/episode/3LA6bXABFoLh1938zoQM0a?si=pYSXIWdNTQWhn0poCxyE2A">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/the-art-of-building-products-users-love-jeff-morris-jr/id1697548240?i=1000626315371">Apple</a>), Jeff Morris Jr. explains that both strategies have their advantages, but the Web3 “financialized use case” approach tends to be misunderstood. He helped Tinder become the top grossing app in the App Store, ballooning the Web2 app’s annual recurring revenue (ARR) from $20 million to $1.2 billion during his tenure with the company.



The former VP of product and revenue at Tinder gained some key insights from his successes before joining the Web3 world as a managing partner at Chapter One. “In Web2,” he says, “the goal was always to build the biggest network possible and then figure out how to monetize them later.”



“The benefit of Web3 is — everything is very monetizable. It&#8217;s one of the reasons why I actually think the space is really interesting as an investor,” he says. “If you have a small subset of users that are active traders, there are very easy ways to build a business.”



Morris cites <a href="https://blockworks.co/tag/uniswap">Uniswap</a> trading volume in Q2 of 2022 as an example of his thought process. “Monthly trading volume was over $170 billion with 400,000 monthly traders.”



“I compare that to <a href="https://blockworks.co/tag/coinbase">Coinbase</a>, which had a little over $200 billion of volume with 9 million monthly traders,” he says. The centralized trading application hosted 9 million users while the decentralized version — Uniswap — only hosted 400,000, “with almost equal trading volume,” he says.



“You could argue that those both have product market fit,” he says, “but if you were to go on a public road show and try to take Uniswap public as a company and explain the fact that you had 400,000 users…they&#8217;d be like, ‘this isn&#8217;t an interesting business.’”



“But it&#8217;s clearly an interesting business,” he says.



<h2 class="wp-block-heading">Reaching a billion users is the wrong goal</h2>



Morris says the common crypto trope that centers on <a href="https://blockworks.co/news/base-next-internet-jesse-pollak">reaching “a billion users”</a> is probably the wrong goal. “If we had 30 million people who were really passionate about crypto and found value in the ecosystem, that would be enough to build a multi-trillion dollar asset class that was great for founders and investors and LPs.”



Morris says that some people have criticized his perspective as giving Web3 builders “an easy path” — claiming they have achieved product market fit despite low user numbers — but he prefers to focus on the positives he sees in Web3.&nbsp;



“I spend a lot of my time looking for signals of positivity or hope, because I think it&#8217;s really important in a bear market to say things aren&#8217;t as bad as everybody thinks.”



But crypto applications still need to be more accessible, Morris says. Citing <a href="https://blockworks.co/news/friend-tech-financialization-goldentre">Friend.tech</a> as an example of what might be considered by Web3 users to be an “accessible” mobile experience, Morris asks what a non-crypto user would think of the app’s onboarding process.



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“I would love to look at the completion rate because most people just aren&#8217;t going to go through this kind of <a href="https://blockworks.co/news/friend-tech-momentum-stalls">janky web experience</a>,” he says.



“Crypto right now still feels like it&#8217;s in 2007 or 2008 relative to where the rest of consumer experiences are. And so yeah, we have a long way to go.”



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Reaching a billion users is ‘the wrong goal’ for crypto, says former Tinder VP

Blockchain products are often described as solutions looking for problems. The question springs up from time to time in the community — when will crypto get the “killer apps” that finally drive it into the mainstream?



It turns out that the apps are already here, says Empire podcast guest Mike Ippolito, in the form of <a href="https://blockworks.co/news/bitcoin-future-change">non-sovereign money</a> and permissionless application building, which are “already hundred billion dollar outcomes,” he says.



On the Empire podcast (<a href="https://open.spotify.com/episode/6dRTiJQczjTL78Cdxf1r9V?si=J-m4FaGJSxOiSFJcHCZm5Q&amp;nd=1">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/the-blockworks-origin-story-michael-jason/id1554930038?i=1000623848167">Apple</a>), Ippolito says, “we’re already looking at a lot of the major use cases” for crypto. “You just need to be patient and wait, that people will eventually use these things. And I believe they will. I&#8217;m really optimistic about that.”



Host Jason Yanowitz adds that <a href="https://blockworks.co/tag/defi">DeFi</a> is already a killer app, but that the use case is often misunderstood as a B2C (business to consumer) system. It behaves more like a B2B, he says, where commerce primarily takes place between businesses instead of flowing to retail consumers.



“DeFi has a dozen protocols that spit off a bunch of cash flow,” he says. “They&#8217;re sustainable. They&#8217;ve got massive businesses on top of them and funds that sit on top of them.” It’s already, Yanowitz says, an “interoperable ecosystem.”



Host Santiago Santos mentions <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> as another strong use case. He sees <a href="https://blockworks.co/tag/coinbase">Coinbase</a> with its <a href="https://blockworks.co/news/coinbase-base-home-degens">recently launched layer-2 protocol Base</a> and app integration with the USD stablecoin (USDC) as a potential “everything app.”&nbsp;



“The whole vision of Base makes me incredibly excited as a catalyst with account abstraction, with USDC as that conduit,” he says, noting that in a recent discussion with Coinbase protocols lead Jesse Pollak, “You could see the vision.”



“Restaurants issue an <a href="https://blockworks.co/tag/nfts">NFT</a>, that&#8217;s your loyalty. You get points and you pay with <a href="https://blockworks.co/price/usdc">USDC</a> — you don&#8217;t even whip out Apple Pay, none of that jazz — everything just works.”&nbsp;



<h2 class="wp-block-heading">Third party innovation as the catalyst</h2>



People had ideas for what would ultimately work on the internet long before it was technically feasible at scale, <a href="https://blockworks.co/tag/framework-ventures">Framework Ventures</a> co-founder Michael Anderson says.&nbsp;



“It took catalyzing events for those things to become real,” he says, “like SSL to make e-commerce actually work and the ability to take digital photos and upload them to make social media actually work.”



Anderson expects “third party events” to “make all these things real,” admitting, “it&#8217;s really hard to predict what those events will be.”



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Ippolito points to the <a href="https://blockworks.co/tag/solana">Solana</a> ecosystem as a community that “gets this.”



“You can squint at <a href="https://blockworks.co/news/drive-to-earn-app-dynamic-maps-crypto-rewards">DePIN (decentralized physical infrastructure networks)</a>, and see how this space might end up evolving,” he says. “Stuff that takes place on crypto actually leverages hardware and might eventually influence hardware and then actions that people take in real life,” he says.&nbsp;



“It&#8217;s clearly not where it ultimately needs to be, but I think you can squint at that and see a very attractive future for crypto.”



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The killer apps are already here. Crypto just needs to mature

John Gilbert

People searched “bitcoin price” some 7.5 million times a month in 2022 — more than double the 3.4 million monthly estimate for “bitcoin” alone.&nbsp;



As crypto traders spent the last 12 months checking (or were unable to turn away from) the typically plummeting price of their digital assets, Cloudflare Radar tracked their behavior.&nbsp;



The firm found that eight of the top 10 crypto services visited in 2022 were either data pricing tools or exchanges. The only exceptions were NiceHash, a platform for buying and selling shares of the hash power behind bitcoin mining, and Etherscan, an Ethereum data-driven blockchain explorer.



Should the overwhelming obsession with price be a concern for crypto?&nbsp;



Industry critics say it’s yet more evidence that the asset class is all but a speculative bubble. The question, though, is really a debate of degrees. 



Every revolution in technology, like the rise of the internet, comes with a cycle of hype and speculation. The difference between the revolutions that succeed and fail is in the ratio of speculative to real demand. A closer look at Cloudflare’s data and adoption trends reveals that the demand behind these services goes beyond compulsive habit.&nbsp;



<h3 class="wp-block-heading">The most popular crypto services of 2022:</h3>



<ol>
<li>Binance</li>



<li>Coingecko</li>



<li>Coinbase</li>



<li>NiceHash</li>



<li>CoinMarketCap</li>



<li>OKX</li>



<li>Etherscan</li>



<li>Crypto.com</li>



<li>MEXC</li>



<li>Kucoin</li>
</ol>



Source: <a href="https://blog.cloudflare.com/radar-2022-year-in-review/" target="_blank" rel="noreferrer noopener">Cloudflare</a>



This ranking saw only one major— and unsurprising — disruption on the year. In November, FTX fell from the seventh spot to 21st place following its bankruptcy declaration. Rivals Binance and Coinbase did not lose any ground. Despite the shock, awe and, yes, headlines proclaiming the death of exchanges, they remained mostly dominant.&nbsp;&nbsp;



Binance and Coingecko, in fact, both made it into the top 10 ranking of financial services:



<ol>
<li>PayPal</li>



<li>Stripe</li>



<li>Alipay</li>



<li>TradingView</li>



<li>Google Pay</li>



<li>Binance</li>



<li>Intuit</li>



<li>Chase</li>
</ol>



Spots nine and 10 were considered a tie by Coingecko, with American Express, Bank of America Merrill Lynch and CompareCards jostling for those positions throughout November. 



Source: <a href="https://blog.cloudflare.com/radar-2022-year-in-review/" target="_blank" rel="noreferrer noopener">Cloudflare</a>&nbsp;



<h3 class="wp-block-heading">Crypto adoption trends for 2022</h3>



Industry setbacks have not come close to erasing a decade of crypto adoption progress. Global adoption remains well above its pre-bull market 2019 levels, according to <a href="https://blog.chainalysis.com/reports/2022-global-crypto-adoption-index/" target="_blank" rel="noreferrer noopener">Chainalysis</a>.



Case in point: When bitcoin dropped to $20,000 (72% off its all-time high of $69,000) in the second quarter of 2022, the adoption index only slightly decreased, from 51% to 50% from its peak.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh5.googleusercontent.com/WZ2KUEX7jjC_SMPI8uPuqdzV6km3XyHes9qQO5KFSe8TU6K79XE7otL_zIei-k4Milum2NQU-mp-QngpnTx2AxoOykt6moyLgLPcvANvzkyTKm051SLGmKZXKnImHolZnjGbJFURqOcQxTo_OEj8t6BrOlqZzWK2zyxcw43BgQNwcrVj9Zj5AIRnkI-VPQ" alt="Bitcoin's global adoption trend from 2019 to 2022"/></figure>



The rise of crypto adoption among emerging nations has been a driving force behind this resilience. The economies of 10 of the top 20 countries in <a href="https://blog.chainalysis.com/reports/2022-global-crypto-adoption-index/" target="_blank" rel="noreferrer noopener">Chainalysis</a>’ 2022 adoption ranking were dubbed “lower middle income,” the third lowest of four such designations (Indonesia, India, Kenya, Morocco, Nepal, Nigeria, Pakistan, The Philippines, Ukraine and Vietnam).



Only two were considered “high income” (US and The United Kingdom), and the remaining eight were categorized as “upper middle income” (Argentina, Brazil, China, Colombia, Ecuador, Russia, Thailand and Turkey).



Turkey booked record high inflation of 83% in 2022. Other countries in a similar position turned to cryptocurrencies to preserve purchasing power. According to SimilarWeb, Turkey was the top country sending desktop traffic to binance.com in November 2022.&nbsp;



And, in a recent <a href="https://wpdevshed.com/binance-statistics/" target="_blank" rel="noreferrer noopener">survey</a>, 38% of Binance users cited a lack of confidence in their country’s existing currency and financial system as one of the main reasons for using the exchange.&nbsp;



This need to escape poor monetary policy may, in part, explain Binance’s user growth in 2022. The crypto exchange’s active monthly users <a href="https://www.binance.com/en/blog/futures/binance-futures-quarterly-report-q2-2022-5670445909238579513" target="_blank" rel="noreferrer noopener">increased</a> from 28 million in 2021 to 29 million in the second quarter of 2022.&nbsp;



That may seem minor, but it is nonetheless impressive, considering that the bear market has not been kind to retail-focused stock trading apps like Robinhood. The broker’s active users <a href="https://investors.robinhood.com/news/news-details/2022/Robinhood-Reports-Second-Quarter-2022-Results/default.aspx" target="_blank" rel="noreferrer noopener">decreased</a> from 22.5 million in 2021 to 14 million in the second quarter of 2022.&nbsp;



<h3 class="wp-block-heading">Decentralization on the rise</h3>



Even though all featured exchanges are centralized, decentralized solutions, including DEXs, notched exponential growth following the FTX bankruptcy. <a href="https://www.forbes.com/sites/leeorshimron/2022/11/23/dexs-gain-market-share-as-faith-in-centralized-crypto-players-erodes/?sh=be840943f40b" target="_blank" rel="noreferrer noopener">Trading volume</a> at decentralized exchanges (DEXs) reached $91 billion in November, a 79% month-over-month pop.&nbsp;



Consider that Uniswap on Nov. 14 booked more ether (ETH) trading volume than all other centralized exchanges, save Binance.



November was also a big month for decentralized social media platform Mastodon, whose active monthly users exploded from 300,000 to <a href="https://www.theverge.com/2022/12/20/23518325/mastodon-monthly-active-users-twitter-elon-musk" target="_blank" rel="noreferrer noopener">2.5 million</a>. Cloudflare&#8217;s rankings for popular internet services placed Mastodon at #200 in January, but it gradually improved throughout the year until reaching a turning point in November, climbing from #190 to #140.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/oH1pqOqMkPuDabX8Oj33RrBpHoE8ND0W2m0691Sxve7ZQx3qOQzlpx-yHzdgwwQ6AQAQ1iUaCNlzpscnbG89avC_BF3FSheU0i7xlIk8lWroZ1R_hW6kTQBUnm6_8UP2GxXFx9pKphqeMWzTi_tGUHxoOhqCrSxwTTp2ynWw0i7gD1ZTkZGh1fp4T60SGA" alt="Mastadon has rapidly gained market share from its centralized social media rivals "/></figure>



The timing of that growth corresponds to the time Elon Musk acquired Twitter. Some have speculated that the influx in users are from people protesting the new management and content policy standards.&nbsp;



The increase in popularity may also represent a larger trend toward more niche, independent online communities. This trend is represented in the rise in popularity of Facebook groups. They make up a majority of the platform&#8217;s user activity. In 2021, Facebook reported 1.8 billion people use its groups. And 77% of those surveyed said the most important group they belong to is online.&nbsp;



Mastodon is similar to Facebook groups in that users can create their own profiles, post and interact with one another — and join communities centered around specific topics or interests. But, unlike the tech giant, it is made up of a network of independent servers, or &#8220;instances,&#8221; that are run by individual users or organizations.



Each Mastodon instance is governed by its own administrator and has its own set of rules and policies, which can and do vary.&nbsp;



The decentralized and permissionless nature of the platform are not features that attract users wanting to protest the lack of content moderation on Twitter. These users could have easily chosen a centralized alternative like Discord, instead.&nbsp;



Discord, however, did <a href="https://pro.similarweb.com/#/digitalsuite/companyresearch/appanalysis/performance/0_com.discord/999/1m/" target="_blank" rel="noreferrer noopener">not see a spike in users during</a> Musk’s acquisition of Twitter in December. The number of downloads <a href="https://pro.similarweb.com/#/digitalsuite/companyresearch/appanalysis/performance/0_com.discord/999/1m/" target="_blank" rel="noreferrer noopener">decreased 5.79%</a> from October to November, and the number of <a href="https://pro.similarweb.com/#/digitalsuite/companyresearch/appanalysis/performance/0_com.discord/999/1m/" target="_blank" rel="noreferrer noopener">daily users dropped 0.05%</a>.



Mastodon’s rise is better explained by the fact that it is meeting a specific market demand — one for an open source and decentralized version of Discord and Facebook groups. And while the platform has nothing to do with blockchain or crypto, it demonstrates there is ample opportunity for Web3 social platforms to grab market share.&nbsp;



<h3 class="wp-block-heading">The state of crypto apps&nbsp;</h3>



For all of crypto’s 2022 changes, some things have stayed the same.&nbsp;



Crypto’s adherents are still conditioned to chase euphoric highs. Decentralized application (dapp) and app developers alike are still tempted by that compulsive instinct to bake recursive and speculative tokenomics into their projects.&nbsp;



But the growth of Mastodon, DEXs, and cryptocurrencies abroad proves it’s no longer needed — if it ever was.&nbsp;



There is a real and growing hunger for genuine decentralization. The next generation of blockchain applications are poised to find new ways to rebrand the embattled industry — and maybe even shake the long running addiction to “number go up.”



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