In this economy?
We’ve heard a lot of chatter about web3 not having business models. We’re here to shut that down – there are viable web3 business models, and they’re working.
In this post we’ll explain them, look at what each requires to be effective, and provide examples that builders can reference when exploring how to leverage them. These models aren’t mutually exclusive and we expect many web3 projects – DAOs especially – to employ bundles of revenue streams.
Alright, let’s get into it.
Membership involves issuing and selling tokens that provide access to a network or community. In the most dynamic membership examples, there are additional rights associated with these tokens such as governance over a shared treasury. These ancillary rights strengthen the membership value proposition, but this isn’t strictly required.
PFPs and Social Tokens emerged as early forms of membership, but we’ve since seen an explosion of experimentation. When done well, membership provides a recurring revenue stream for the network and incentivizes members to participate in value-creating activities.
Successfully implementing a membership model requires occupying a compelling meme-space and ensuring your token model is designed to capture the collective belief in that meme. Once that’s in place you can focus on attracting high-quality early members, overserving them, and then leveraging that success to attract new members.
First-Party Drops involve releasing incremental community assets that expand access, add to the lore, and/or provide new experiences to holders. First-Party Drops are best facilitated after finding meme-market fit with your inaugural asset and have demand in significant excess of your initial holder base.
There are endless options for how to go to market with these assets, but typically they’re offered for free or low cost to existing holders, and sold for a higher cost to the public.
The high margins make this an appealing revenue stream, but it’s hard to do well and the sustainability remains an open question. We can look to streetwear brands like The Hundreds and Supreme for inspiration on how to create a seemingly insatiable appetite for drops over long periods of time.
Curated Drops involve first aggregating attention or expertise and leveraging them to partner with creators and co-release their work. Your project needs to be seen as a high-signal curator by the broader market for this to be effective, as artists will be looking to borrow your credibility to expand their distribution.
Transaction fees – often between 5% - 15% of primary sales – are the default monetization strategy here, but we’re seeing experimentation with alternative models. For example, Proof sells passes to a gamified experience where collectors mint after seeing only the art; artists are revealed after the fact.
Our lives are becoming increasingly dominated by digital environments, and we now have the ability to build our digital identities with things we own, not just the things we post. This is going to propagate into everything we do on the internet and create a massive market for identity-building assets.
Although we’re still early in the exploration of this market, and are missing the crypto-native social contexts to really unlock it, we’re already seeing meaningful value creation here. PFPs, digital fashion, and namespaces all allow us to create unique and recognizable digital identities, and signal our values and interests.
ENS is worth highlighting from the examples. It’s both highly scarce at the core (limited number of single word domains for example) which incentivizes early adoption and invites speculation, while also being almost infinitely inflationary to seamlessly meet the growing demand. Names need to be renewed which drives recurring revenue in perpetuity. We’d love to see more projects experiment with similar mechanisms, or even sell their own namespaces. (Wen .boysclub, .poolsuite, .nouns?)
We see collecting digital cultural ephemera as an emerging consumer behavior that will ultimately be a core part of life on the internet. This behavior is already established in offline contexts (streetwear, band shirts, coasters, figurines, etc.) and the connectedness of the internet will explode the social importance of their digital counterparts.
Communities occupying broadly compelling meme-spaces will have endless opportunities to release these collectibles to grow their distribution, propagate their brand, and monetize.
Low cost open editions are having a moment right now, and may very well become the established way to release these. Although it’s important that the collectibles are able to stand on their own, we think creating experiences to recognize collectors is a promising design space to increase the attention they capture.
Projects that aggregate a community of high-value people are able to offer services to companies that want access to these insight communities. We’re seeing this used both by broad interest-based communities as supplementary revenue streams, as well as by explicit Service DAOs as their core business model.
Projects that facilitate a high-volume of transactions are able to take a small transaction fee. Being able to effectively do this requires having a highly compelling product, as builders can fork away the fee, and users are incentivized to find lower cost options.
Network Value (Meme)
This is possibly our favorite category to play in, and the most novel value creation model of web3. Projects that are able to capture the attention and imagination of a large group of people are able to store that attention in a network asset.
These assets can become very valuable purely on the belief that something valuable will be built around them in the future, and in turn actually provide the resources (through team and project allocations) to invest in making it happen.
We’re just getting started, friends. This list certainly doesn’t cover everything, and we’d love to hear of any innovative business models you’ve come across in your blockchain travels that we might have missed. But it should be clear how much potential there is to create sustainable value in crypto if you’re able to build something people want to be a part of.
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