In 2018, Dani Grant and Nick Grossman of Union Square Ventures published The Myth of the Infrastructure Phase. In that seminal article, the duo argued that applications foster the development of infrastructure, and in turn, infrastructure fosters the development of new applications. As they point out, this pattern can be seen in the evolution of new crypto technologies — from the creation of Bitcoin to early decentralized applications.
Today, we are on the brink of another set of breakthrough applications — new types of consumer experiences powered by cryptocurrency, driven by an emerging infrastructure stack.
The History of Application vs. Infrastructure Cycles in Cryptocurrency
Over time, we’ve seen the trends outlined by Union Square Ventures come to fruition in the crypto space. From Bitcoin leading the way to the creation of centralized exchanges to Ethereum being the driving force behind early decentralized applications, key developments in crypto seem to mirror the application infrastructure cycle.
Bitcoin → Wallets and Exchanges (Early to Mid-2010s)
As I mentioned in my article about wallets, Bitcoin (2009) advanced existing asymmetric key pair technology for writing to public databases, creating the first “crypto wallet.” The first real-world Bitcoin transaction took place on a Bitcoin forum in 2010. Coinbase (2012) and other exchanges followed, aiming to make it easier to send and receive Bitcoin securely.
Coinbase homepage circa 2012
However, Bitcoin’s design as a digital currency rather than a general-purpose smart contract platform limits potential uses.
Ethereum and ERC-20 → DeFi and DAOs (mid-to-late 2010s)
Ethereum was launched in 2015, intended to be the next generation smart contract and decentralized application platform. The leading crypto wallet MetaMask (2016) was launched shortly after Ethereum, establishing a new paradigm for interacting with applications through a web browser. In addition, the ERC-20 standard for fungible tokens, implemented in 2017, allows developers to create tokens for products and services.
This infrastructure subsequently enabled early decentralized applications, including:
DeFi: Lending protocols and automated market makers such as Aave (2017), MakerDAO (2017), Uniswap (2018), and Compound Finance (2018) drove the creation of decentralized finance. Since then, the total locked value in DeFi has grown to over $50 billion.
DeFi TVL over time
DAOs: After early attempts by MakerDAO (2015) and The DAO (2016), MolochDAO (2019) introduced ERC-20 to its framework, which has since been used to create over 900 DAOs. Following Compound’s pioneering ERC-20 (2020), some of the most used protocols have launched tokens and transformed into DAO structures. Today, there are over 19,000 DAOs managing over $30 billion in assets.
The state of the DAO as of January 8, 2024
However, the ERC-20 standard only works for fungible objects. This was demonstrated by an early NFT project, CryptoPunks (2017), which modified the ERC-20 code enough to produce non-fungible items.
ERC-721 → NFT (late 2010s - early 2020s)
CryptoPunks was the inspiration for ERC-721 (2017), the standard for “non-fungible tokens,” or NFTs. The Ethereum-based game CryptoKitties launched in November 2017, becoming one of the earliest and most well-known ERC-721 projects. At its peak, the game attracted over 14,000 daily active users — spurring the formation of the NFT marketplace OpenSea (2017). Subsequently, more marketplaces (such as Art Blocks and SuperRare), financialization platforms (such as NFTfi and Blend), and discovery and tracking applications (such as Floor and Gallery) were launched, helping to promote the widespread adoption of NFTs.
In addition to ERC-721, other NFT infrastructure standards have unlocked new use cases. For example, the NFT compression technology released by Metaplex and Solana Labs in November 2022 enabled the creator platform DRiP to distribute millions of NFTs cheaply to more than 800,000 wallets. In addition, ERC-6551, created in February 2023, enables each NFT to have its own account/wallet address, expanding the scope of NFT utility.
Today, the NFT market is valued at over $7 billion.
NFT Market as of January 9, 2024
While NFTs have brought cryptocurrency to consumers’ attention, they also present many shortcomings in terms of user experience: high fees, mnemonics, complicated onboarding, etc.
Crypto Application Infrastructure Stack → Consumer Applications (Today)
We are starting to see the emergence of an infrastructure stack that supports the next generation of consumer applications. This includes low-fee blockchains, embedded wallets, bridging solutions, distribution channels, and identity protocols, among others.
The Emerging Crypto Application Infrastructure Stack
Early experiments with consumer applications have led developers to build a more consumer-friendly infrastructure. This crypto application infrastructure stack will drive the next cycle of consumer application adoption.
Low-fee blockchain
High gas fees inhibit frequent transactions of low-value items in casual, gaming, and social experiences. We have seen many L1 and L2 blockchains launched over the past few years, with more to come.
Today, Ethereum still has 360,000+ daily active addresses and 1,000,000+ transactions. However, many competitors are also vying for block space, including the following data as of January 8, 2024:
Solana: Nearly 538,000 daily active addresses and 24,000,000 daily transactions
Polygon: Nearly 602,000 daily active addresses and 3,000,000 daily transactions
Arbitrum: Nearly 141,000 daily active addresses and 972,000 daily transactions
Base: Nearly 55,000 daily active addresses and 318,000 daily transactions
Ethereum L2 will benefit from EIP-4844: Shard Blob Transactions, an upgrade expected in Q1 2024 that is expected to reduce fees on second-layer Rollups by 10-100x.
Embedded wallet
We are seeing a shift towards apps owning the wallet experience to:
Make it seamless for consumers to join Web3 (e.g., no passwords required)
Providing financial services (such as asset transfer and trading)
Wallet-as-a-service providers have evolved to meet this need. These include Magic, Privy, Coinbase Wallet, Dynamic, and others. They are bringing a better user experience for consumers to get started, with features such as:
Log in via phone number, social accounts (e.g. Google and Meta), or existing crypto app accounts
Authentication via passcode key (e.g. FaceID and TouchID)
Account recoverability
Privy user authentication process
Many wallet-as-a-service providers also integrate with account abstraction infrastructure providers (e.g., Biconomy, Zerodev, Stackup, Safe) to offer additional functionality enabled by programmable, self-custodial accounts (“Smart Accounts”), such as:
Sponsoring gas fees (eliminating the need for users to pay for gas)
Batch transactions (execute multiple transactions as a single transaction to save confirmation time and gas costs)
Session keys (enabling pre-approved transactions in highly interactive applications)
Adoption of this capability is still early, but it is growing.
Next up is a more seamless single sign-on across apps. One possible solution is to have the phone embed private keys locally. iPhones and some Android phones include the Secure Enclave, which is dedicated hardware that stores encryption keys. However, they don’t currently support the ability to use it to encrypt native keys. The Solana Saga Phone’s seed vault shows broader potential by protecting private keys with secure hardware and AES encryption. Capsule is also experimenting with its single sign-on solution in this area, enabling access to multiple apps with one set of login credentials.
Entering and exiting Jinhe Bridge
Historically, it has been difficult for users to deposit and withdraw funds from their cryptocurrency accounts. Over the past few years, a number of solutions have emerged to address this issue:
Crypto Onboarding: Kado, Moonpay, Stripe, Ramp, Transak, and others enable consumers to pay for crypto using credit cards, Apple Pay, Google Pay, and bank transfers. Providers vary in payment method options, asset exchange, and/or slippage rates and fees.
Crypto-to-exit channels: On-ramp providers including Kado, Moonpay, Ramp, and Transak have expanded into off-ramp, enabling consumers to exchange crypto for fiat within the app.
Checkout with Fiat Currency: Checkout solutions including Moonpay Checkout and Crossmint’s NFT Checkout enable consumers to purchase digital goods and NFTs using credit cards.
Use any token on any chain: Decent, Reservoir, Peaze, and others are working to make it easier for consumers to transact in applications without having to worry about gas, bridges, or swaps. Additionally, wallets (e.g. Metamask, Phantom, Trust Wallet) have launched integrated cross-chain swaps in their interfaces. With the increasing adoption of intent-first user architectures, users will increasingly be able to express their preferences and allow third parties to fulfill them.
Kado Services
Identity Protocol
Over the past few years, we’ve seen protocols and services emerge around users’ multi-dimensional Web3 identities:
On-chain transactions (e.g. quantifying your on-chain skills and expertise via DegenScore)
Owned assets (e.g. token gating via Tokenproof, membership management via Guild)
KYC and human identity proof (e.g. biometric/legal verification via Worldcoin, Proof of Humanity, or Coinbase Verifications using the Ethereum Attestation Service)
Social persona (e.g. username on Lens, Farcaster, or Gallery; ENS domain)
Real-world achievements (e.g. POAP earned for attending an event, or proving Uber ratings or Twitter followers on ZKPass or Clique)
POAP's Curated Memory Preservation Ecosystem
With the rise of large language models, we will see more consumer applications providing consumers with personalized experiences based on their on-chain roles and activities.
Distribution Channels
Historically, consumers have discovered decentralized applications through Telegram, Twitter, or Discord, and accessed them through a cumbersome desktop experience that required downloading wallet extensions and signing a ton of transactions that popped up. That’s changing.
First, traditional app store policies are becoming more crypto-friendly, and new approaches are emerging:
Historically, one of the biggest barriers to web3 movement has been the 30% fees Apple and Google charge for in-app payments. Under the EU Digital Markets Directive (implemented in 2024), iPhone users will be able to download apps from outside the App Store. This opens up opportunities for new third-party app stores to easily publish and discover crypto apps.
Recently, both Google Play and Epic Games have taken a positive stance towards incorporating NFTs into gaming.
FriendTech suggests that progressive web apps (PWAs) — web apps that resemble native apps — can provide enough of a user experience to achieve adoption.
Second, crypto-native discovery platforms have been launched in recent years:
Quest platforms and protocols (e.g. Rabbithole, Layer3, Galxe, Coinbase Quests, Blaze)
Crypto-native app stores (e.g., Flame for Web3 games, Launcher for consumer crypto apps, Mint.fun for NFT minting)
Social discovery applications (e.g., Floor for learning what NFTs others are minting or buying)
Transaction discovery engines (e.g., Daylight highlights recommended on-chain actions based on previous wallet activity)
Referral rewards (e.g. Sound, Rabbithole, and others offer incentives)
Flame's Web3 game discovery platform
Third, existing platforms have begun to integrate cryptography, abstracting away technical details and reducing friction. Some notable examples include:
Telegram: The TON Foundation recently announced a partnership with messaging app Telegram for native integration and promotion, including crypto wallets. In addition, crypto trading bots (e.g., BONKbot, Maestro, Banana Gun) that use Telegram as an interface have attracted increasing users and trading volume.
Reddit: The social media site’s NFT avatar led to over 28 million mints, attracting over 25 million minters.
Grab: The Southeast Asian super app has been piloting a crypto wallet.
Opportunities in Cryptocurrency Applications
We’re already starting to see early examples of consumer applications that can be built on top of this infrastructure stack. Here are some categories to watch in 2024:
social contact
The initial meteoric rise of the SocialFi app FriendTech proves that the combination of PWAs, embedded wallets, and low-fee blockchains provides a strong foundation for Web3 social applications. I’m excited to see more social experiments this year:
Social Speculation Games: Tokens (and points) essentially financialize social interactions. From live streaming platform Unlonely’s betting feature to Farcaster’s in-app currency Warps, I’m excited about apps that embed speculation into social experiences to engage users, incentivize action, and monetize.
Community Driven Memes: The success of tokens like $BONK demonstrates the power of rallying communities around meme coins. I expect we will continue to see the longevity of memes that are driven by teams and those that have historical value.
Web3 native character brands: The PFP series, including Bored Ape Yacht Club, Azuki, and Pudgy Penguins, and other NFT projects have focused their ambitions on becoming the next (decentralized) Disney. From games to toys, it will be interesting to see if these brands will "go mainstream."
Given the difficulty of capturing consumer attention on the internet, the biggest challenge is for projects to retain users’ money and time. An alternative is to launch ephemeral apps — casual, profitable experiences that are designed to be profitable from the start, but aren’t meant to last forever.
game
The success of early blockchain-based games such as NBA Top Shot and Axie Infinity in introducing player-owned economies has led to a massive influx of funding into the space. From 2021 to October 2023, over 16,000 new Web3 games were in development or on the market, with nearly 100 funding rounds allocating $19 billion in funding to Web3 games. These games are increasingly coming to market, powered by infrastructure such as embedded wallets, low-fee blockchains, and decentralized identity standards. I am particularly interested in games that:
Leverage emerging technologies like AI NPCs (e.g., Parallel's Colony, Today The Game) and spatial computing (Apple Vision Pro coming in February 2024)
Bringing encryption facilities to multiplayer social games (e.g., Otherside, Pixels)
Build casual mobile experiences using the latest traffic and distribution advances (e.g. Sleepagotchi, Draw.Tech)
Pixels: A web3 farming game with approximately 330,000 monthly active users
Payment
Global remittances remain difficult due to a lack of affordable and user-friendly solutions. Payments leader PayPal announced its commitment to on-chain payments for its 400 million active users, stating that “cryptocurrency brings us closer to what people want: fast, cheap, global payments.” This is made possible through a low-fee blockchain that reduces transaction costs to fractions of a cent.
With the stablecoin market expected to grow to $3 trillion in the next few years ($125 billion as of August 2023), Beam, Sling Money, Code, Coinbase Wallet, and other emerging companies are seizing the opportunity to streamline payments using blockchain technology. Given that the core focus of these Web3 payment applications is similar, the advantage of going to market (whether in terms of distribution, geography, or use cases) will be key.
Connecting the digital and physical worlds
Blockchain technology enables near-frictionless exchange, real-time provenance, global trade, and networked awareness for physical objects.
Now that the infrastructure has evolved to the point where cryptography can be abstracted, brands have been leveraging blockchain and NFC chip technology to launch digital-physical experiences. For example, IYK’s platform has helped over 100 creators create immersive experiences that bridge the gap between the physical and digital worlds:
Generative Goods One-of-a-kind physical artifacts and home accessories connected with generative NFT art
The Pudgy Penguins plush toy comes with a QR code linking to an NFT that can be used in its upcoming Metaverse game.
VÉRITÉ releases a crewneck sweater, gives fans a sneak peek at her new song and subscribes for exclusive updates
I look forward to more brands and creators experimenting with this new design space to increase consumer engagement and authenticity.
IYK Platform for deploying digital-physical experiences
DePIN
As I’ve written before, consumers are playing an emerging role in driving supply and demand on the Decentralized Physical Infrastructure Network (DePIN). We are starting to see consumer products gaining momentum on both the supply and demand sides of the DePIN network:
Helium recently launched 5G cellular service, priced at $20 per month, with the opportunity to earn $MOBILE tokens by choosing to map the network. Since the beta launch in May 2023, more than 34,000 subscribers have signed up.
Since November 2022, decentralized mapping network Hivemapper has used $HONEY tokens to incentivize over 36,000 contributors to map nearly 7 million kilometers (over 10% of the world's roads). Meanwhile, Google collected 16.1 million kilometers of maps from 2007 to 2019. Unique road data. By enabling consumers to install dashcams in their cars, they are able to provide fresher, more affordable map data based on everyday driving.
More than 400,000 consumers are sharing their unused internet bandwidth with Grass, a decentralized web scraping network focused on turning public web data into AI datasets.
The Metablox app, which provides a free, decentralized WiFi OpenRoaming service, has reached more than 12,000 users.
I’m excited about DePIN consumer products that provide passive income for activities consumers already do (e.g. driving, using the internet) or that offer cheaper, better alternatives to existing products.
Metablox's app provides free, decentralized WiFi OpenRoaming
Customer Loyalty
Since the NBA launched Top Shot on Flow in 2020, Web3 brand efforts have set off a wave:
Metaverse Projects (e.g. Gucci exhibits in The Sandbox)
Digital collectibles (e.g. Nike selling digital Air Force 1 Lows)
Digital physical goods (e.g., Tiffany & Co sells NFTs redeemable for physical pendants and necklaces)
Engagement and rewards (e.g. Starbucks uses NFTs in its loyalty program)
Community and co-creation (e.g., Reddit attracts a community of artists to help create its collection of avatars)
While loyal customers provide the highest value to brands, many loyalty programs today have issues: the average program has a redemption rate of only about 14%. As consumer interest in crypto increases, we will see more brands build coherent Web3 strategies to build deeper relationships with their communities.
Additionally, startups like Web3 restaurant loyalty app Blackbird and community engagement platform TYB are experimenting with building cross-brand on-chain rewards networks. I’m particularly looking forward to industry-specific solutions unlocking new fan experiences and delivering fit-for-purpose products.
Just as every crypto cycle brings new applications and infrastructure, the past few years have seen the growth of the consumer crypto application stack: low-fee blockchains, embedded wallets, etc. These advances provide the catalyst for a new generation of applications.
