In the first part of the series Killer Web3 Products 🔪 (Part I), we talked about PMF. In this post, I want to dig deeper into what we discussed previously — network sufficiency.
So, what is network sufficiency? In my opinion, there are three checkpoints before a Web3 product can achieve network sufficiency:
- The network won’t die. Memecoins are a perfect example because even if these coins can have no real utility, liquidity drops but never leaves.
- The network can’t shut down, restart, or reset because nobody controls it. Even if the world governments colluded, it would be impossible to shut down Bitcoin.
- The network provides the correct incentives. This is one of the most underrated insights, and probably the least understood. We will discuss this in this post.
Network incentives can make or break a network. Without the correct incentives, a network can’t reach self-sufficiency. It is also one of the most underrated aspects of product design that is incredibly difficult to get it right. Why is that?
I speculate that traditional Web2 tech startups haven’t had to work with in-depth economic principles when building their product. It has been limited to concepts of supply and demand, TAM (total addressable market), and building market monopolies. On top of that, these economic principles have been a concern of upper management or founders and not individual product managers. However, in building Web3 products economic design is a concept that product managers should understand. When there is a lack of economic design, we end up with Web3 products that become impossible to bootstrap. Incentives are part of these economic design principles. They are a cornerstone principle for network sufficiency.
Excellent incentives are what make a killer Web3 product. Whereas bad ones can leave a network circling on a pump-and-dump cycle. Many times these incentives are subtle.
Uniswap got this right twice in two big ways:
- Uniswap was the first widely used exchange where anyone could be a market maker by being a liquidity provider. The average retail person in centralized exchanges couldn't be a market maker before this. Letting anyone be a market market or liquidity provider was a superb incentive.
- UNI airdrop in 2020 was one of the biggest news. The network decided to reward its participants which fueled its growth further. This is very common today, but in 2020 it was the first of its kind.
Unfortunately, if any incentive works well in the free market, it gets copied. This is what happened with the Uniswap incentives. As a result, it leads to heavy competition, which we see in the DEX space. But, Uniswap remains to be a market leader, especially in the Ethereum space.
TL’DR: Whoever wants to build the next killer Web3 app, will have to design new and innovative incentives. Without killer incentives, there won’t be any killer app.
Feel free to reach out to me on Linkedin or send an email to Leeraj42@gmail.com for collaboration and Web3 opportunities.
Did Satoshi set the correct incentives from the start?
