Some reasons to build your startup in web3 🧵

I recently had the chance to meet some great web2 founders considering moving into web3.

Web3 is trendy now, so it’s important to cut through the noise and highlight the right long-term reasons to start a web3 project.

Here are some good reasons to build a web3 project:

Product

Wikipedia is simply a better encyclopedia than traditional encyclopedias because it harnesses the knowledge and creativity of its community.

DAOs are novel web3 constructs that supercharge online communities by providing more sophisticated coordination methods and control over internet-native financial resources.

In the past year, thousands of DAOs have been created across a broad range of categories including financial services, investing, content creation, games, social clubs, and more.

That said, we are still early in the exploration of the DAO design space.

There will likely be opportunities to apply DAOs to novel areas and create breakthrough products.

Economics

Web3 changes the economics of internet services by removing layers of intermediaries and dramatically reducing take rates (fees charged by intermediaries).

This provides an opportunity for startups to attract and foster communities by providing superior economics to creators, developers, and other network participants.

For example, social networks like Instagram and Twitter don’t share any revenue with the creators who made them popular.

In web3, creators can go direct to their audiences by selling things like NFTs, earning 90% or more of the revenue they generate.

Web2 social networks were built by convincing people to give away their creative work for free.

This will stop working once creators realize there are credible alternatives.

Overall NFT sales volumes have been averaging billions of dollars a month.

At current trends, web3 creator payouts will soon surpass web2 creator payouts.

Marketing

Web3 unlocks powerful new marketing techniques.

First, web3 enables projects to offer token incentives to users in the early phase when the native network effects are weak.

This helps overcome the bootstrap problem that has defeated so many promising early-stage startups in the past.

A great example of this is Helium, which has used token incentives to build a nationwide grassroots telecom service to take on the telecom incumbents.

Second, in web3 tokens are self-marketing. When someone genuinely owns something and feels skin in the game, they want to evangelize it.

Instead of building your service on top of incumbent platforms or using paid advertising, web3 lets you build it via the enthusiasm of users.

This dramatically lowers the cost of customer acquisition, and lets you build much higher-quality communities.

Ecosystem

The vast majority of software running in the world is open source, created by communities of developers.

This is because smart people with relevant expertise are everywhere.

As Bill Joy famously said: “no matter who you are, most of the smartest people work for someone else.”

Web3 projects can tap into a vastly larger talent pool by creating and nurturing a developer ecosystem.

Developers want to know they are building on a credibly neutral platform where the rules won’t change.

Web1 protocols like HTTP and SMTP did this very well, leading to an explosion of innovation.

Web2 tried to make developer commitments via  promises (“don’t be evil”).

This didn’t work, as we’ve seen over the years. Web2 platforms routinely deprecate APIs and change terms of service with little regard for third-party developers.

In web3, promises to developers are baked into the system via immutable, open source code (“can’t be evil”).

This means developers can count on credible neutrality, the way they could in web1.

This will lead to a new wave of widespread, permissionless innovation.

Ethos

Finally, and most importantly, is the web3 ethos.

The internet has become increasingly dominated by a handful of incumbent tech companies.

web3 takes us back to the internet’s original vision: a decentralized network governed by open protocols, where power and money flow to the edges instead of centralized intermediaries.

I wrote more about why web3 matters here:

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Originally published on March 6, 2022