What makes a successful Web3 project?
Overview of Aggregation Theory
Aggregation Theory was developed by Ben Thompson in 2015 to explain the success of platforms/aggregators during the Internet boom.
According to Ben, the value chain of a product includes three main roles: suppliers, distributors and end users (consumer/user). In particular, companies or applications will act as distributors in the middle
To be successful in a given market, companies must satisfy one of the following two conditions:
· Exclusively one of the three roles above
· Integrate two out of three roles in your value chain.
Taking the 2000s with the explosion of the Internet as a benchmark, let's look at Aggregation Theory through two different market periods.
Pre-Internet period
In the pre-Internet stage, companies focused on competing through monopolizing the distribution role or integrating the distribution role with suppliers. Eg:
Book or newspaper publishers (distributors) gain advantages through quality content sources (suppliers).
Taxi companies (distributors) will compete through an abundant source of drivers (suppliers).
It can be seen that successful companies in the pre-Internet era mainly competed through integrating distributor roles with suppliers.
However, the above strategy gradually changed during the Internet boom in the 2000s with two major changes:
The advantage of the distribution role has gradually disappeared as access to information has become easier through the Internet.
Distributor costs are reduced to zero due to digitalization and automation. From there, it allows companies to easily expand user files on a large scale at low cost.
For example, in the newspaper industry, the Internet makes all sources of information easily accessible on the website. The cost of distributing online information sources is almost zero compared to printing newspapers. From there, the company can easily expand unlimited user files via the Internet.
Thus, entering the boom period of the Internet, the competitive advantage of companies (distributors) has shifted from integrating with suppliers to integrating with users. In other words, the company that provides a better user experience will have an advantage in the current period.
The company's development process under the lens of Aggregation Theory
According to the theory above, the success of platforms starts from building a good product experience (UX), thereby creating their user base and eventually attracting suppliers.
· Demand-Drive Flywheel in Aggregation Theory
· Below, we take a look at some big technology companies that have succeeded with Aggregation Theory.
Web2 technology companies
Netflix:
At that time, the cost of serving a new customer is almost zero due to building and modularizing a movie library via the Internet.
As the user base becomes larger and the revenue increases, Netflix can produce its own series and acquire quality film rights (suppliers).
Uber
When the number of users is large enough, car drivers (suppliers) will choose Uber due to its stable and large customer base. From there, creating an Uber network effect.
Netflix and Uber are two examples in Aggregation Theory. Both changed their industries from supplier-driven flywheel to demand-driven flywheel during the Internet boom.
The shift from supply-driven flywheel to demand-driven flywheel in the pre-Internet era
Web3 projects
Web3 platforms also possess a similar structure to web2 projects with connections between suppliers and users. This model can be found in many different forms in the web3 market such as:
· Capital aggregator platform: connection between LPs (suppliers) and users;
· Service aggregator platform: connection between dapps and users;
· Interface aggregator platform: connection between web3 services and users.
· Classifying aggregator groups in Web3. Source DeFi Summit (2020)
With Aggregation Theory, we can see similar success characteristics in the Web3 market:
Uniswap - DEX
The DEX model is also composed of three main roles:
LPs (supplier) => DEX platform (distributor) => Swapper (user)
Normally, DEXs will focus on attracting liquidity (LPs) through incentive programs such as airdrops or yield farming. However, the approach only attracts liquidity at first and cannot develop long term if it cannot retain users.
DEX's initial development strategy
Uniswap is considered one of the most successful case studies according to Aggregation Theory. Currently, this dapp owns nearly 6 billion USD in TVL, nearly 3 million monthly users with 59.77 billion USD in transaction volume, according to Token Terminal data on June 12, 2024.
Uniswap's success comes from:
Simple UI for Web3 users. First mover with AMM Dex mechanism allows users to easily use instead of order book mechanism (EtherDelta).
UX is always upgraded with each version. The V3 update with the CLMM model is a new step to help increase capital efficiency for users.
Uniswap interface
Currently, Uniswap is constantly upgrading its products with new features such as Hook or UniswapX (Uni v4), while retaining user files with friendly UI/UX. From there, attract LPs with stable revenue and transaction volume from users.
Aggregation Theory in Uniswap
MetaMask - non-custodial Web3 Wallet
Wallet's value chain includes three main components:
Features (Supplier) <=> Wallet (Distributor) <=> User
Metamask also started from expanding user files through friendly UI/UX in 2020. When the DeFI market exploded in 2020-2021, MetaMask quickly launched new features such as Swap, Bridge, Custom RPC , ... turn yourself into a superapp for Web3 users. The above convenience has turned Uniswap into a top-of-mind in the industry with 30 million monthly users by Q4 2023.
With a stable user base, MetaMask can develop its own features or even attract non-EVM wallets that can build on this wallet (MetaMask Snap).
Through two case studies of Uniswap and Metamask, the two main factors contributing to success are simple UI/UX and continuous improvement of product quality. Broadly speaking, both applications bring users convenience benefits instead of short-term speculation purposes. According to Aggregation Theory, both develop from building sustainable relationships with end users (demand-driven).
However, it is undeniable that the distinct advantages of the two projects above, such as first mover, have a close relationship and great support from the Ethereum foundation. Besides, the growth of Ethereum also contributes to the success of Metamask and Uniswap.
Expand the lens
After the 2020-2021 uptrend period, projects are gradually changing their development strategies, from competing with each other through incentive programs (supply-driven) to expanding outside the Web2 market to attract new users. really. Blockchains like Solana, Base, Ton all have unique strategies that help blur the gap between Web2 and Web3 through focusing on the end user experience.
Applying Aggregation Theory to Blockchain Platform
A trend that has emerged recently, when Web3 projects that own their own user files will develop into a separate blockchain, specifically Rollup-Specific Application, to take advantage of network effects and attract more users. value.
Some projects that capture a large amount of liquidity through the Point program like Liquid Restaking are expanding their roles to retain users. However, as mentioned above, focus on sustainable values and user experience.
Limitations of Aggregation Theory in Web3
Aggregation Theory points out that platforms should develop from relationships with users during the boom period of the Internet. However, there are still limitations when applying the theory in the context of the Web3 market.
First, it is difficult to build a sustainable relationship with users compared to the Web2 market because of two factors coming from the nature of the market: (1) open source and (2) high speculation of the market, causing Users can easily move to projects with higher investment opportunities (low switching cost).
Some examples are vampire attack from Sushi Swap with UniSwap, Convex Finance with Curve Finance, Blur with Open, or some Liquid Restaking projects using Point program at the present time.
Crypto users show the lowest level of patience
Besides, most user experiences are still limited in the Web3 space, making it difficult to expand on a large scale like Web2. As a result, users must bear network fees, security risks as well as fragmentation in the user experience. However, from a more positive perspective, the current limitations of web3 prove that this field is still new and needs time to mature. This is also an opportunity for projects and startups to find solutions and develop and dominate the market.
So what makes a successful Web3 project?
The success of a Web3 dapp includes many factors such as being a first or early mover, a good team and technology, an effective airdrop and tokenomic strategy... However, for a project to develop sustainably it requires The project must build relationships with users and bring real value to them.
Unicorn projects in Web2 have to go through many cycles and stumbles before reaching the success they have today. We can completely believe that Web3 projects can also become the next unicorn when user experience problems are solved.
