Caos

In the previous article DApp Development Guide -- Preparation, we roughly understood the development stages and characteristics of DApps, and compared the similarities and differences between Web2 applications and Web3 DApps. We also supplemented some thoughts and principles for development preparation and provided some directional suggestions based on my own experience and lessons in DApp development.

Introduction#

When I first came into contact with blockchain technology, I had a lack of understanding of the blockchain market at that time. I couldn't objectively evaluate the product logic, demand scale, and engineering difficulty in the market. I was simply excited about the novelty of the new technology and its open concept. As I gradually gained a deeper understanding of the business and technology of the blockchain industry through many trial and error attempts, I found that the success rate of startups in the blockchain industry is lower compared to the traditional internet industry, mainly due to the following reasons:

• Market cycle transitions can affect market demand.
• High and unstable customer acquisition costs.
• Strong speculative nature of users, speculative demand can overshadow real demand.
• Most businesses lack a stable business profit model.
• Businesses are easily affected by market fluctuations.

During this stage, we often face a lot of uncertainties. Whether it is developers, product managers, or CEOs, we need to have an objective and clear understanding and judgment of the current and future medium- to long-term market conditions. We need to make wise decisions based on limited information and resources. In the blockchain industry, entrepreneurship and trading digital currencies are different. Once the direction and field are determined, it is often a relatively medium- to long-term process of execution and implementation. Before the product is officially launched and seen by users, it is impossible to obtain effective feedback. Therefore, it is very important to control time costs and opportunity costs reasonably.

Therefore, before we decide to build a DApp, we need to be well prepared and do our homework, identify long-term signals in the market, eliminate noise interference, and objectively evaluate whether the return on investment is reasonable.

Types of Demand#

To facilitate evaluation, I have summarized several typical types of demand based on importance, ranked from high to low:

• Demand for asset-to-asset exchange (exchange rate) —— trading and speculative demand
  • Centralized exchanges
  • Decentralized exchanges
• Demand for asset yield (interest rate) —— asset preservation demand
  • AAVE
  • Compound
  • Other DeFi...
• Demand for asset liquidity (capital utilization efficiency)
  • Cross-chain bridges
  • DeFi aggregators
  • Lido...
• Demand for asset security
  • Security audit companies
  • Asset custody services
• Demand for blockchain investment data analysis, etc.
  • Dune
  • Nansen
  • Alpha digital
• Developer efficiency and scalability demands
  • Developer platforms
  • SDK toolkits
  • Node service providers
  • Layer2 & ZK
• On-chain asset/data display and trading demands
  • OpenSea
  • ENS & DID
  • SocialFi & GameFi & Metaverse
• Project and ecosystem development demands
  • Blockchain media
  • Marketing tools
  • Service-oriented DAO organizations
  • User education organizations, etc.
• Privacy and anonymity demands
  • Privacy solutions

These demands are sufficient to cover most types of demands in the current blockchain industry and can be classified based on product direction and business type. Find competitors in the same track and position the target user group for the product.
In addition, these demands are not mutually exclusive and can also be combined more organically through product and design innovation, becoming a competitive advantage for the product.

It should be noted that different demand directions have different target audiences for the product, and the potential user base determines the strategy and cost required for the project. The input-output ratio also needs to be evaluated.

Types of Products#

After determining the demand category, the next step is to determine how to enter this category based on the desired product type (strategy). Let's summarize them as follows:

• Innovative type —— Products that lead the exploration of the crypto world, able to create a new market or segment
• Imitative type —— Imitators based on the foundation of innovators, with targeted differentiation and innovation
• Cloning type —— Products that replicate innovators or imitators in the new ecosystem
• Integration type —— Products that combine blockchain technology with existing businesses

Different types of products require different resources and efforts, ranked from high to low, and the risk-reward ratio also varies from high to low.

Innovative type: It requires insight into the long-term development of the market, finding definite opportunities in huge uncertainties, while maintaining a focus on technological development, discovering/pioneering new blue ocean markets, and having enough confidence and perseverance in the chosen direction to grow in cross-cycle adversity.

• Uniswap & OpenSea
• The development of NFT has given rise to the demand for NFT lending and liquidity
• ETH 2.0 has given rise to the demand for Staking liquidity

This type of product requires a team with strong market and technological research capabilities, able to develop productized solutions based on current market demand and existing technology, and has high requirements for product development and operation.

Advantages:

• Facing a blue ocean market with few competitors, it is easy to establish a leading position
• Can quickly acquire users and assets
• Innovative projects have more market premiums

Disadvantages:

• High business risk and low success rate
• Need to invest a large amount of resources to ensure business security
• High requirements for team professionalism
• Cross-cycle adversity growth capability

Innovative products are surprises that can be encountered but not sought in the industry. They not only require team efforts but may also require the collective efforts of the ecosystem and industry. This type of product requires long-term accumulation and precipitation, and also needs to go through hardships and market tests to become an industry-recognized leader.

Imitative type: Even in existing fields, there are still opportunities. The more mature the demand field, the greater the opportunity to run stable businesses. Some innovations based on existing protocols can also achieve good results:

• Fantom for Ethereum
• LooksRare for Opensea
• Sushiswap for Uniswap

This opportunity requires a deep understanding of the imitated protocol and user group, and the ability to solve pain points for users in the existing protocol through innovation, providing them with better services to win market share.

Advantages:

• Have rich reference cases from predecessors, learn from their strengths and weaknesses
• No need to invest too much trial and error cost from scratch
• Eliminate user education costs and contract audit costs

Disadvantages:

• Imitators do not have the first-mover advantage
• Need to invest more in innovation to surpass imitators
• Continuous differentiation and product design implementation; imitators will also be imitated by others

In the open-source environment of blockchain, imitation is not plagiarism but more extensions and innovations based on existing protocols. In the early stages of blockchain, this is very beneficial to the industry's development. Imitators also put pressure on innovators, forcing them to continuously improve their products through imitation, helping to form industry standards, increase product coverage, and provide users and developers with more choices.

Cloning type: Opportunities for existing mature businesses in the new ecosystem:

• QuickSwap for Uniswap
• MagicEden for Opensea
• New ecosystem LaunchPads, etc.

It requires a deep understanding of the new ecosystem and the ability to quickly execute and integrate resources with ecosystem partners and projects.

Advantages:

• Possess all the advantages of imitated protocols with lower costs

Disadvantages:

• The business itself has no barriers and overly relies on ecosystem development and entry barriers
• It is difficult to surpass the one being imitated
• Higher competition costs and resource integration costs
• More need for innovation in imitation

The above three types of products are classified based on completely decentralized businesses. There is another type of product that has received a lot of attention and achievements in recent years, which integrates blockchain technology with existing business or product models, achieving a 1 + 1 greater than 2 effect.

Integration type: Improve existing products by combining blockchain technology with accumulated business, mostly Web2.5 products, focusing more on user experience and solving existing business problems.

• NBA Topshot
• Instagram
• Starbucks & Nike

Advantages:

• Clear user profile
• No need to worry about cold start problems
• Can quickly conceptually verify and obtain immediate feedback through existing users
• Often able to leverage existing resources and talent advantages of the organization

Disadvantages:

• Unpredictable regulatory and compliance costs
• There is a high probability of failure if it is a superficial attempt
• Will face resource competition from other business lines within the organization
• High requirements for business integration and design capabilities

In 2022, traditional companies in various industries have gradually adopted blockchain technology. Unlike financial companies, which were mainly led by Wall Street in 2018-2019, financial institutions aimed to become new intermediaries to obtain commissions in the market. In addition to the financial industry's own needs, they did not solve real business problems. On the other hand, traditional large companies and brands choose to use blockchain technology to solve existing business problems, explore new businesses, or solve bottlenecks in existing businesses. The users of such products are different from native blockchain users. They do not have speculative motives during the use of the product and can provide real feedback and usage data, helping blockchain products achieve true large-scale adoption, solve practical problems, and bring positive external benefits.

Blockchain technology cannot overthrow the existing financial system and internet ecosystem but can better integrate with them. It is like familiar browser extensions and plugins, extending the space for the internet and open finance with advantages such as non-repudiation, low-cost, efficient value exchange, etc.

Conclusion#

In this article, I have summarized the existing blockchain business models and product forms in a relatively general way, helping everyone understand the current blockchain market demand and the overall business situation. Before making decisions, we can have a relatively clear map to help us identify the pros and cons of different strategies and possible risks in different tracks and evaluate and consider based on our actual situation.