The Breakdown - Where Crypto Has Product-Market Fit (And Where It Doesn't)

Episode Date: October 1, 2023

NLW reads "The Barrier to Mainstream Crypto Adoption Isn’t UX — It’s Product-Market Fit" by Li Jin. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, October 1st, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello friends, welcome to one of the best months of the year. October, you love to see it.

Around here in these crypto parts, we call this October. And I don't know if the price is going to follow that, but I certainly know that the vibes will. Now, it is Long Read Sunday, and this show represents for me not only a chance to bring in the opinions of other people, but also a chance to think a little bit more broadly, a little bit less focused on the news of the day or the week. And so with that in mind, we turn to a piece from Legion, one of the other than the last, the co-founders of Variant that makes an argument about one of the big challenges that faces the

industry as it attempts to go more mainstream. I think it's an interesting argument, and so I'm going to read the piece and then we'll talk about it a little bit further. The essay is called The Barrier to Mainstream Crypto Adoption isn't UX, its product market fit. Lee writes, discussions about accelerating adoption of crypto often focus on improving user experience. The popular thinking goes, Web3 products lag behind from a user experience perspective, onboarding poses multiple points of friction, and technological concepts come with learning curves. Web3 is missing a seamless experience for apps that will unlock greater adoption. While improving CryptoUX is certainly important, I believe that the more significant

and urgent barrier to adoption is building things that people want. Web3 has a product market fit problem, not a U.S. problem. Product market fit is when a product satisfies a strong market need. For consumer builders, the elegance and challenge in building for consumers is that humans have remarkably consistent needs across time. That's why Maslow's hierarchy of needs continues to resonate nearly a century after its introduction, with universal needs ranging from the physiological, food, shelter, and clothing, to the psychological, belonging, love, entertainment, and esteem.

The history of consumer startups is one of continual innovation in solving for human needs in novel ways. Though people often dismiss new consumer apps as incremental innovations in flipping categories, i.e. teens making dance videos, the truth is that successful startups offer a step-function improvement in enabling people to achieve a core need. Amazon sold us books and everything else in just a few clicks, dramatically easing the process for procuring goods. Facebook enabled us to connect with those we care about instantly. Tinder exposed us to an order of magnitude more potential romantic partners than anyone could stumble on in real life. There is a lot of evidence that when the user benefit

is great enough, users are willing to jump through UX hurdles and learn new behaviors, in crypto and beyond. Examples include the first iPhone which lacked a touch keyboard, the internet itself, and all crypto assets and applications that have had significant adoption to date, NFTs during the last bull market being a primary example. For products that solve a core need, unfamiliar and complicated U.X hasn't been a blocker. Despite the long list of multifaceted user needs, so far, explorations of the opportunities that crypto can uniquely address have been largely limited to the financial realm. While income is a widespread need, products where income derives from speculation work when the market goes up, but lose their appeal as prices fall.

It's a tough sell, especially when there are alternatives for users to attain income with less risk and uncertainty. There is an opportunity for crypto builders to build products that better address other human needs, such as belonging, community, and entertainment. What could that look like? On a small scale, NFT communities and decentralized autonomous organizations have satisfied some people's need for belonging, forging novel social graphs on the basis of asset ownership. To those who say that shared financial interests can't be the basis for real relationships, consider that many of our real world connections are predicated on ownership, whether that's neighborhood homeowners, startup employees, or Pokemon card collectors.

There's an opportunity to leverage on-chain assets as the basis for new communities that solve for belonging, esteem, and connection. In August 2023 alone, 94.5 million NFTs were minted across Ethereum and its layer two scalability. protocols. As the volume of user activity grows, imagine inferring users' interests based on on-chain actions and exposing connections based on a rich activity history. Onchain media expands our entertainment options, giving us skin in the game for what we consume and create online. On platforms like sound.xyZ, friend.com and zora, users can bet on media and creators they believe in, enhancing their experience of the content and turning these networks into financialized games.

In a world where all media is incepted as NFTs, there will be a new economic dimension that can enrich our experience of the internet. These are just starting points for what it could look like for crypto-defined product market fit and address needs beyond just income. There's room for much more experimentation from here. To achieve widespread adoption and evolve beyond their current niche, crypto products need to enhance the human experience through solutions that wouldn't be possible without crypto. All right, back to NLW here. The core jumping off point that I want to use here is this idea that the barrier to adoption has not been UX, but has a lot of the US. been around product market fit. I think it's a really interesting and salient point. First of all,

let's talk about the Ux problem. There is 100% undoubtedly a Ux problem in both crypto and Bitcoin for those who choose to separate those two pieces out. In fact, just this week on the Bitcoin Builders podcast, I talked about this with Max Hillebrand, who works on projects like Wasabi Wallet. When it comes to getting users to opt into privacy preserving solutions, one of the big barriers is that they tend to be much more difficult than third-party custody-type solutions. And so in that case, UX really does matter. I think it's certainly true as well that there have been UX barriers to the adoption of Web3 products as well.

Just look around at the type of companies that are getting funded right now. One example is Bastion, a company led by former A16Z executives, that is basically dedicated to bringing Web2 quality user onboarding experiences to brands that want to integrate digital assets and Web3 experiences, for the consumers that interact with them. Now, they're going about that in a bunch of different ways, thinking about routing and when things need to be on-chain versus off-chain. And so the point of this is just that even if UX isn't the only or main problem,

it definitely is a problem. But I think I agree with Lee that the problem of product market fit and building things that people want is much, much more significant. I think NFTs are an interesting example of this. On the one hand, I think you certainly can make an argument that they saw way more product market fit last bull run than many people would have anticipated. The fact that they were one of the first products in many, many years to bring an entirely new set of people into nominally the crypto or Web3 space is quite telling, I think. Now for people who have been into any sort of

collectible, maybe that wasn't as surprising as those who weren't. But of course now, with prices down 95 percent, the really interesting period that NFTs are going to have to go through is how much product market fit they actually had other than just price appreciation making people like them. Were NFT communities really communities as we understand that word, which have been able to preserve and continue excitement among members even as prices have gone down? What is it that those communities or collections offer that are different than those who haven't been as successful in retaining interest? It strikes me that when we think about this generation of NFTs, particularly these avatar NFTs, this is probably going to be the period where we learn just how much product market

fit there actually is versus how much it seemed like during the bull market. Now, the flip side of that is that the idea of bringing discrete, ownable digital assets into the mix is an idea, which is likely to find product market fit in a number of different ways. One of the big themes that seems to be shaping up going into the next bull cycle whenever it is to begin is the idea of real-world assets coming on chain. There are many reasons why people are extremely bullish about what that will mean in terms of new financial products that can be built around them, ease of transferring ownership. And so it may be in some ways that the technology that underpins NFTs might find other types of product market fit beyond just

these avatar collections as a for example. But I also want to use this idea of product market fit to look in the context of Bitcoin. One of the things that is extremely notable to anyone who has been a Bitcoiner for a while and interacts with people, A, in the U.S., and is, and or Europe or places that have reasonably structured relatively fair monetary systems, versus interacting with people who live under the yoke of oppressive regimes, or who live in incredibly unstable monetary regimes that see double-digit inflation every year, is where the resonance of an asset like Bitcoin is most likely to come from. Blockworks Jason Yanowitz recently tweeted a quote from Wences Kassares about Bitcoin.

That quote read, I find that it's very hard to explain Bitcoin in the U.S. It's probably the hardest country. Argentina is one of the easiest. And it makes sense because when you talk about money to an American, it's a little bit like talking about water to a fish. A fish doesn't even know that water exists. It's invisible to them. They won't know what you're talking about. Money has always worked for Americans. It has worked for them and for their parents and for their grandparents. They have always used the same form of money. In Argentina, each generation has discarded some form of currency, at least once, more than once. Imagine that for some crisis you can get rid of the dollar and you could have a new

currency, a new American currency that's called something different but not dollar. It just changes significantly how you see money. You don't take it as this given instrument that works. It makes you question a lot. Now, I have had not only this experience in general, but exactly this experience, specifically with my father-in-law. I had talked to him lots and lots of times about Bitcoin, but it wasn't until we were together in Buenos Aires in 2019, and I had him sit with a bunch of the crypto kids down there who are building projects like Maker and others, that it totally clicked to him why this would matter. And this is what I think so often people don't understand who are in this American context, that a fixed supply, non-sovereign money, like Bitcoin, has extraordinary product

market fit in places where the money is the most volatile already. Product market fit, remember, doesn't mean that it's great for everyone. It means that there's a specific use case that has lots of people who need that use case that it's great for. Now, as Lee's post ends with speculation about where there might be other product market fits to be found, it's really hard to say. Ultimately, we can sit and opine and speculate, but people are surprising. And what people actually like and interact with is surprising. It's very hard to predict what type of consumer experiences are actually going to hit until they do. I have a ton of skepticism based on what I've seen so far over the last few years, around Lee's interest in things that, quote, turn networks into financialized games.

But I could be wrong, and there could be a generation of kids or people for whom that's exactly a product market fit. Ultimately, people are just going to have to build it, see what works, discard what doesn't, and move on to the next thing. But the reason that I wanted to share this is that I think that this framework of thinking in terms of product market fit is a really good one. I think it explains what crypto has done well so far, and I think it explains how much farther there is to go. But anyways, for now, that is. where we will wrap this Long Read Sunday. I appreciate you guys listening as always. Until next time, be safe and take care of each other. Peace.