Author: Pudgy Penguins CEO Luca Netz; Translated by Baishui, Golden Finance
Last month we launched www.igloo.inc and subsequently announced the acquisition of Frame to build Abstract, an L2 focused on scaling and solving challenges related to consumer crypto. Since then, it seems the narrative has shifted to consumer crypto, sparking a debate about what consumer crypto really means. In this post, I want to discuss what I believe consumer crypto is, why we haven’t achieved consumer crypto adoption yet, and why I believe consumer crypto represents the most important frontier for this industry.
What is Consumer Crypto?
I define consumer crypto as the adoption of blockchain-powered applications that are used by billions of people for personal use in their daily lives.
However, this definition is too broad, so to be more specific, it’s important to note that I believe consumer cryptocurrency adoption will occur in three phases. I’ve categorized each phase based on spending habits:
Phase 1: Discretionary spending
Phase 2: Necessary Expenditure
Phase 3: Necessary Expenditure
This chart represents each stage in relation to the growth of user adoption:
Discretionary spending — first 50 million users
The initial phase of the consumer crypto revolution will revolve around discretionary spending — consumer-focused businesses built around discretionary or leisure spending, or in other words, applications that occupy people’s free time. These types of applications will be the first to break through because they are easier to spread, easier to sell to consumers, and building them on-chain can solve problems that Web2 applications cannot.
Businesses focused on discretionary spending tend to revolve around entertainment. In the consumer world, “entertainment” often faces significant barriers to entry, such as payment processor issues, geographic restrictions, and regulations that prevent Internet businesses from scaling and thriving. To illustrate this, let’s look at some of the issues that consumer-focused Web2 businesses currently face:
Fees: Typical payment processor fees are too high and have too much leverage on merchants. On average, merchants pay 2.9% to 10% in transaction fees. The higher the risk profile (which is often the case with entertainment apps), the higher the fees.
Geographical limitations: It’s easy to do business in your home country, but global expansion presents significant challenges, especially when it comes to compliance across different jurisdictions. Most applications cannot scale outside of their current jurisdiction. Entertainment is universal, but unfortunately Web2 infrastructure is not.
Chargeback Risk: Current Web2 applications are limited in the size of their spend. Businesses cannot always capture the true potential of their premium users due to limitations set by processors, preventing people from spending the amount they want to spend.
Scrutiny: Businesses are at risk of scrutiny by their service providers, which could prevent them from expanding aggressively or reaching their full potential.
Building consumer applications around discretionary spending is the lowest hanging fruit in the consumer crypto ecosystem and will be the first stage in achieving mass adoption because it will be easier for entrepreneurs building interesting products to build them on blockchain rails. For greater clarity, here are the consumer categories I believe are easiest to disrupt in discretionary spending:
game
Social (Creator Platform)
trade
casino
Gaming
Digital Collectibles
Tokenized culture: transforming intangible assets into tangible, tradable, redeemable and permanent assets.
I believe these categories have the potential to drive consumer adoption of cryptocurrency to the point where it reaches its first 50 million active users. To support this argument, here is a list of the most significant consumer crypto applications we see today. Notably, they all fall into the category of businesses that are targeting a share of discretionary spending:
OpenSea - Digital Collectibles
Topshot - Digital Collectibles
Polymarket - Gambling
pump.fun - Social and tokenized culture
Uniswap - Trading
Rollbit - Casino
Pudgy Penguins - Digital Collectibles
Friendtech - Social
StepN - Social
Axie - Games
Necessary spending - the road to 250 million users
Once you break through 50 million users, the focus expands to capturing a share of necessary spending — integrating crypto into more aspects of life beyond leisure time. This phase includes apps in the following categories:
DeFi
DePin
SaaS
Digital Media
Digital Commerce
Payment
Basic Consumption —— A World Onchain
After overcoming the necessary spending barriers, we achieve breakthrough adoption - basespending adoption. This refers to building consumer applications around basespending that enable users to do anything on-chain that they would otherwise be able to do off-chain. Examples include:
Online Banking
Credit
Tokenization (RWA)
Insurance
data
Internet of Things
identity
vote
Now that the path to success is clear, why haven’t we achieved mass adoption yet, and how can we get there?
Question: Why haven’t we achieved breakout user adoption yet?
Over the past 10 years, consumer adoption has been in the hands of blockchain companies that have raised tens of billions of dollars to further adoption. Unfortunately, few companies have succeeded with this approach, and my answer to this is simply derived from the spirit in which they were founded. My assessment is that many of today’s blockchain companies follow a 0-100 “generic” approach, ambitiously dreaming of being on track to become the next generation of the internet economy. Below is a visualization of how a generic blockchain can achieve its growth and priorities.
Universal blockchain:
The universal model is a classic example of fragmentation, and unfortunately, mass market penetration and fragmentation do not go hand in hand. The universal approach is ambitious, but the effort required to achieve it is enormous. As a result, teams that do not have the necessary talent or resources to implement this approach are likely to go out of business quickly, ultimately wasting time, energy, and resources that could have been invested in achieving mass adoption.
Solution: To achieve a breakthrough, you must focus
I think of blockchains like cities, and like all cities, demand for blockchains is driven by the attractions and activities they offer. Therefore, I believe the breakthrough in consumer adoption will come from teams that are highly focused on curating the top attractions within a city. Once you have an attraction that draws people into your ecosystem, you can build cities around that attraction.
Blockchain for Consumers:
Based on the above, my assessment is that we haven’t seen mass adoption not because we can’t do it, but because we haven’t focused on doing it well. General-purpose blockchains and consumer-focused blockchains are not interchangeable. Building a “consumer chain” is more than just a catchy slogan — it’s a fundamental goal and mindset that no one has fully embraced. Recognizing this gap led us to see a unique opportunity in the blockchain space, which led Igloo to acquire the Frame team to contribute to building Abstract.
Our team’s commitment is to build the top destination on-chain, a place that aims to be the most fun destination on the internet — what I call “crypto’s digital playground” or “Disneyland of the internet.” The graphic below highlights our unwavering focus on delivering a superior 0-1 consumer experience without distraction. Over time, once we have built a loyal user base by launching new products to capture other aspects of people’s lives, we can evolve into a general purpose chain. For us, this represents a highly focused strategy, building on achieving specific successes and then evolving from there, compared to the decentralized approach taken by general purpose chains.
Abstract’s path to success:
Consumer Cryptocurrency Is the Last and Most Important Frontier of Cryptocurrency
Cryptocurrencies today mirror the dot-com boom of the early 21st century. In the first decade of that era, innovative infrastructure companies emerged, but few achieved widespread adoption. Over time, only those that successfully achieved breakthrough adoption survived and thrived. Cryptocurrencies are now at a similar crossroads. After 10 years of building infrastructure, it’s time for the industry to break through to the mainstream.
However, the narrative surrounding cryptocurrency is fragile. Currently, the space is dangerously veering towards becoming a haven for gambling and financially risky behavior. As more and more people suffer losses, the idea that cryptocurrency is a scam for degenerate gamblers is slowly deepening in the public consciousness. While this may be a meme to crypto natives, it is a very real concern for the general public and unfortunately, it is also the narrative surrounding cryptocurrency at the moment. I worry that if we don’t achieve mass adoption in a meaningful way soon, we risk limiting the potential of the entire industry. This is why I believe consumer cryptocurrency represents the most critical and final frontier in the cryptocurrency life cycle.
Community Issues
At the end of this article, I asked my X community if they had any questions about consumer cryptocurrencies. Here are a few of the questions they asked and my answers to each.
Question 1
Answer: Tangibility:
One of the biggest unlocks of tokenization is the ability to make the intangible tangible. One of the biggest potential innovations of crypto may actually be its ability to influence culture through tokenization and extract value from it. Let me explain: Since the beginning of time, investors have been pegging their investment ratios to literal values, price-to-earnings ratios, or future forecasts. It wasn’t until cryptocurrencies that tokenized value became a thing, but until now, I haven’t heard anyone describe it that way. To me, a new asset class has been unlocked, a paradigm shift has occurred, and the intangible culture has now become tangible. I think the biggest opportunity of tokenization is the tokenization of influence and ultimately being able to make influence tangible. We’ve seen products like bitclout, friendtech, etc. try to crack this code in the past. However, I don’t think any of them have come close to getting it right. In my opinion, pump.fun combined with Bitclout, Polymarket, and an Instagram-style product could become one of the most valuable companies in the crypto space.
Question 2
Answer: Don’t reinvent the wheel just yet
Crypto developers are trying too hard to reinvent the wheel. Some breakthrough consumer products could be 10x bigger today using crypto rails and incentives. Rather than trying to reinvent a model, take an existing one and crypto it. I believe there is a huge untapped consumer crypto application and Web2 peers waiting to unlock huge growth potential through crypto rails.