When I started investing and advising Web3 projects in 2021, as a founder myself, there was a recognition of a kindred spirit in fellow project founders I’d come across. Through all the jargon, hype culture, speed and volatility that NFTs are notorious for, one day, the NFT landscape would eventually mature.
There’s nothing like a bear market that forces one to grow up. The May 2022 stablecoin crash was a big wake-up call for inexperienced founders building in the bull. There’s no celebration of a 70 per cent loss of value in the crypto market, but this crisis has caused the industry to move at a different cadence, a saner one. Spotlight is now on projects that have succeeded, and now it’s the time to dissect why.
Last year, the success metric for a project had been relatively simple thus far. Firstly, how fast can you sell out an NFT collection? Secondly, how much capital can you raise? Finally, can you sustain the floor price?
During the height of the bull run, these projects were all driven by speculation. But now that the crypto space has cooled down, NFT project founders are coming back to the same conclusion. It’s time to go back to the first principles.
Finding community-market fit
Community-market fit is the new product-market fit. As NFT projects were building out their communities to prime the members for a minting experience, they may not have realised it, but they were establishing community-market fit. With this continuing evolution of the internet, it’s interesting to see that it’s not just the technology that is becoming decentralised; our social structures are also moving in that direction.
What are we learning from these modern communities? Some examples could be motivations beyond money, the authenticity of the early evangelists, and proof of “trust building” behaviours in each other and the projects’ products.
Also Read: Should Southeast Asian startups look to transition from Web2 to Web3?
If executed properly, project founders should be able to shift their mindset away from “how do I sustain floor price to keep holders happy?” towards “how can the community sustain itself”, therefore increasing the valuation of the project.
Once community fit is developed, the next stage is defending your position. In this case, we don’t have to reinvent the wheel. All you have to do is to look at success in other fields, how others have made mistakes, and how we can apply it towards the Web3 industry. In this case, some of the most formidable moats in Web2 are definitely transferable to Web3.
First mover advantage: Cost of switching brands
Techcrunch reports that most of the trade volume in NFT projects is attributed to the top 10 NFT projects. There seems to be some sort of Pareto play for the projects that are first to market. Even though derivatives have their own 15 minutes of fame, the first-mover advantage seems to be the ace up the sleeve of the “blue chip” projects. Web3 mentality has ego around being first to market, and that it can confer advantages, but most of the time in business, it depends on the circumstance.
With many of the protocols already set up, it’s a tall order to shed old habits and simply switch brands. Unless your NFT project offers something revolutionary, one shouldn’t expect to leave a mark. If you were to launch a collection, launch it with a purpose and disrupt.
If you can’t be first to market, be first in class to market. Or find those that were to market and figure out how to create better user experiences. Some projects that have come to mind are DeGods, which introduced a “paper hands tax”, and Goblintown, which mastered the free mint.
Innovation within the NFT market comes in waves. Metas cycle in and out every three weeks or so. While it does seem quite the undertaking to disrupt at this level, we operate in such a nascent industry that there is simply so much room to innovate. Conversely, the bear market has helped reduce noise. Only the true builders remain, and experience dictates that most technology transformation breaks through because of quieter markets.
Localisation
Southeast Asia has seen epic David and Goliath battles between international giants and local startups. Grab took maket share away from Uber. Lazada is beating out on Amazon. Gcash has defended from many fintech entrants. In every instance, it was clear that the local startups knew their customer on a deeper level than their larger, international counterparts. No amount of organisational infrastructure, resourcing, or capital can replace the value of deep insight into local markets. Hyperlocalisation is one of the best competitive advantages.
Also Read: 3 steps to starting a business in Web3
While one of the biggest draws of Web3 is the immediate global audience that provides international liquidity, NFT projects that succeed are the ones that consider the intricacies of cultural nuances. The closest I’ve seen explored are the language-specific subchannels in Discord servers, in-city meetups, and content optimised for specific cultures or time zones.
Azuki’s ‘Proof of Skate’ auction, raising over $2.5 million for eight gold-plated skateboards, is a testament to how strong communities can band together, despite bearish market conditions. Apart from this event being one of the best-in-class marketing events in the quarter, Azuki holders are often found collaborating and meeting in real life.
Network effects
Not to be confused with virality, this refers to the value creation generated as more and more users start to adopt a company’s products or services. NFT projects often resemble one-sided markets in their infancy stage. As more holders get onboarded, we see enriched experiences through more content and diverse applications. It’s all about the vibrant community.
In 2016, Pokémon Go took a mere 19 days to reach 50 million users. This was significant because it took Whatsapp one year to do so, Facebook, three years. However meaningful the Pokémon Go experience was, fast forward to 2022, and it seems all but a distant memory where users would run around the neighbourhood, trying to catch a Bellsprout.
A great study for NFT projects looking to embed virality in their product or service (more meaningful than promised Airdrops). Retention is baked into game economics with features like the Lure Module. When Lures are placed in a geo-mapped place, it brings all players in the area (with more chances of catching Pokémon. More Pokémon in a place means more foot traffic users want to visit to gain rewards.
NFT Projects, now starting to think about phygital application, should be investing in similar strategies to create supply and demand. Real-life meetups to get exclusive Airdrops, treasure hunts to unlock rewards, and community-led hack-a-thons with prize money sponsored by the team. Possibilities (and examples) are plenty.
Web3 founders must balance many balls, from whitelisting partnerships to managing hype post-launch. Investing earlier into building defensibility will prove to be of long-term value, especially when retaining community loyalists. Get the fundamentals right, floor price will follow.
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