What your mom hasn't told you about building in consumer crypto | Mac Budkowski | ETHWarsaw [4]

We have uh Mark Butokovski and he's going to talk about well what your mom hasn't told you about building in consumer crypto. So as I said my mom hasn't told me anything so I'm really really curious.

Yeah, I'm going to try to fill that gap. Um so I've spent the last few years among crypto founders. I was running a podcast where I interviewed tons of them. I don't know something went wrong. Uh

your screen saver turned on. That's that's what happened.

Okay, I'm done. Uh okay. So uh I was running a podcast then I hung out with many of them at conferences. I also became one when I was running Ethereum hacker news called Kiwi. And in June I stepped down from Kiwi and I had a lot of time to reflect.

And my biggest reflection was that building in consumer crypto is very different from building normal consumer startups. And here's why. Uh okay. So anyone here? Uh okay.

And so here's why. Uh if you're building a startup, it's like going with this magic rod through the desert. You're looking for water and this rod is about to shake where the water is near. But it's very easy to trick yourself that it you know it was shaking even though it was just like your trampling hands that you are longing for water like okay maybe product market fit is just around around the corner okay yeah I already feel it right like it's very easy to trick yourself and in crypto it's even easier because we have all these layers like airdrop farmers tokens and so on and I'm going to start with a most obvious example so anyone here knows Barcaster. Okay.

A few people. Yeah. So, it's like a decentralized social network. They're they kind of similar to Twitter. And lately, they started a Twitter premium alternative called Farcaster Pro.

When they started, it didn't have many pro features yet because it was just launched for believers. and they made $1 million in 24 hours in consumer crypto, which sounds like a amazing result and you should like open champagne and dance with your teammates and be like, "Yeah, we made it, right?" But when you look at the details, it turns out that almost half of people who bought this pro subscription had less than 100 followers, which is weird because if it's like if it's like a pro product, it's for power users. That's why it's named pro, right? So why do you think these people decided to buy this pro subscription even though they weren't pro users?

become pro users. Okay. Any other ideas? Yeah, that that's a good one.

Early adopters.

Early adopters. Yeah. Insiders. Yeah. Okay.

So, so we have a few ideas. So, about being prousers, this true that they got some badge when they became prousers. So, it was easier to find their profile so they could get some extra followers and so on. But the really reason was that they paid $120 and next day they got 600 worth of airdrop. 5x in 24 hours.

That's a pretty good result even for crypto, you know. And the funny thing is this post is not written by a speculator. It's written by Chris who's a long long time forecaster believer and user which shows us that there are at least two groups of people that bought it you know believers and speculators and in Farcaster case it's actually pretty sad because the team wants to build a genuine consumer product and it's not them like they haven't air dropped this token to these people. It was this token was created by someone else that they don't even know. But you know like this is the environment that they have to live in.

So the funny thing is you can make $1 million in 24 hours and still not be sure if you validated the market for your product, which is pretty bananas if you think about it. If you compare it to any other web 2 product, if you make $1 million in 24 hours, you are, you know, on a highway to growth. So, of course, like airdrop hunters, that's like the obvious example, but I will give you maybe more subtle ideas. When we started Kiwi, you had to buy an NFT for $10. It was called Kiwi Pass and then you could fully use the product.

In first three months we did like zero advertisement like product was pretty raw back then and we still had like over 100 people buying it and among them you know people like Fred Wilson who's like one of the most prominent VCs in the world and I was like wow it's the middle of the bare market we have people buying our consumer product for $10 even use it and I was like okay it's only 100 people but we zero marketing. It was like fully organic growth and I was thinking well maybe we are on to something but then we learned that the story is a bit more complicated because you know we spoke with these people and some turned out to be just our friends and they wanted to support us. The others were like okay you're building an open-source decentralized project and we believe in this value so we also want to you know buy it and show that we like it. And some people were like, you know, it's $10 of magic internet money. Like, I will buy it.

Maybe one day I will use it. Which meant that big percent of people who paid for our product didn't intend to use it at all and they were not airdrop farmer. And you know if you think about these miages on you know desert where you are looking for water if you speak with web to founders what they will say you know yeah there is this concept called vanity metrics and it's typically Twitter followers or page views these things don't matter what matters is revenue if you have good revenue you can raise a lot of money you grow and everything is perfect but what we have shown with these two examples you can have revenue and still don't know if you're on track. You still don't know if water is just right around the corner. And this is one thing that makes it super tricky to build in consumer crypto because this signal is very distorted.

And you know, the market structure doesn't make it easier. Like when you look at the market, there's been like around 45 million monthly active wallets on Ethereum if you count mainet and L2s. So it's all together. But the funny thing is, you know, of course it's not like each of these people, each address is one person. Like I have probably like 15 addresses.

Probably if we added all addresses here, we would probably have like 100 at least. So it's less than 45 million people out of 8 billion people in the world. That means that using the classic Joffrey Moors terms, we have less than 1% market penetration, which means that people who use crypto, and I mean use crypto, not just buy crypto on Coinbase, are innovators and early adopters. And these people are very nice. They are very interested in your products.

Even if the branding is bad, even the UX is bad, they will use it. But the problem is that one week your chart may skyrocket because these people are so interested in your product and next week they just go after the next shiny thing and your chart goes down. So also like this group of people is very diverse like this these this is this is Ethereum culture and this is Ethereum culture. One part is, you know, people in unicorn costumes on stage. The other is Amin teaching guys knife fighting.

And like when you think about Ethereum, we have like cryptographers, philosophers, speculators, strat fight people, artists, designers, like there are hundreds of subcommunities and at least 10 bigger communities. So this already small market of 45 million addresses is further divided into these subgroups. So there's even less people that you can actually address. And like in big markets like coffee, there are brands like this. It's called Black Rifle Coffee and it's been created by US Army veterans who want to serve coffee to people who love America, you know, like because the market is so huge that you have space for niches like that, right?

And they make millions of dollars, millions of dollars. Well, like in crypto, the market is so small that it's very easy to pick a niche that is too small. Like you can have users, they may keep using your product, but there's just not enough of them and you still cannot make a sustainable business. So that's a pretty uh big problem if you want to build here. And also, you know, speaking about product market fit, most people think it's just growth.

They're like, "The app got like 100,000 downloads in one week." Well, that's PMF. All friends are using the app, it's PMF. The protocol makes 10 million, it's PMF. But product market fit is not only about growth, it's also about retention.

Like, let's say you run a shop. You know, there's a shopping mall uh just around the corner. You run a shop. Let's say you say you you sell shoes. If people came in to your shop, look around and left, would it be a good shop?

Probably not. But if you counted, you know, customers growth, like how many people entered your shop, you're like, "Yeah, my chart is growing. You know, people are coming, but they didn't buy anything. It's just like this revolving door." And it's easy to forget about it when app is growing.

But like what matters if what really matters is if these people are going to stick around. Like remember clubhouse you know it's been what like three years ago it's been growing like that and no one cares about it because they couldn't retrain their users. So you know this is Michael Seel. You might know him. He's like he's been one of the founder partners at YC and he's a co-founder of Twitch.

So what he says is, you know, when they launched some kind of like a proto Twitch app, they had 16 million downloads in four months and they and at some point onetenth of all users on Facebook saw their videos. All users in the world and they still didn't have PMF because their retention was so terrible that they were basically burning the market. people were coming into the app looking around and just leaving. So this is the thing that you also have to take into account and you know we know this high growth low retention traffic because look do you know when the airdrop happened? What's your guess?

Yeah, of course somewhere between February and August, right? So this is what shows that like you need to have retention because you can have this growth and it doesn't matter. So this is uh so like you have these speculators, you have people who are well-meaning but they don't use your product, you have a small market and you also have troubles with getting retention. So uh this is not really great but I will add insult to the injury. Uh I mean there are also waves these waves like you know in 2021 let's say you want to build a metaverse app you can get a lot of attention just because you're building metaverse because everyone is speaking about metaverse now try launching metavverse app today and see how it goes right you wouldn't get as much attention because the wave came in and when the wave came down you are just lost with whatever you had so the problem is that these waves come and go and it's very easy to trick yourself that you have PMF even though you're just riding the wave of attention.

So uh the last thing I don't want to make you depressed about building consumer crypto but I will add the last one. Uh you know there are two other things at play. So here's my tweet like when typical startups fail they go out out of business. When crypto startups fail, their tokens stick around with shell foundation and community theatrics, sometimes with billions of dollars in market cap. And this is a real problem because these people fight in this zero sum game.

If they are not on your discord channel, if they are on if they believe Cardano is going to win, of course they won't read about Ethereum and they won't read about your DAP because they are in this propaganda content pipeline of their favorite network. So it's very hard to get this locked attention that is locked among hundreds of projects where the people still believe that their points or tokens or NFTs or whatever will finally have some value. And also the other thing is you have these uh memecoin seasons and other token prices. You know, like there was this AI memecoin moment at Twitter when everyone was talking about it and same with base memecoin season. Like we saw at Kiwi our usage numbers going down when there was base memecoin season.

And like when you think about it, why wouldn't we? If someone can spend 15 minutes learning about decentralization, reading an essay or 15 minutes looking for the next 100xcoin, even if you are in it for the right reason, you're like, well, this is the chance to make, I don't know, buy a Lambo, right? So, like a lot of people just were focused on these meme coins. And when the memecoin may just slow down, then we got our usage numbers up. So, you know, this is a pretty grief outlook when it comes to the consumer crypto market and this is one of the reasons why it hasn't grow enough and why we don't hear about that many consumer crypto apps beyond like courtyard, poly market and stable coin apps.

But there is hope and I want to share some solutions that I have and I think I will I will be brief when it comes to speculators because airdrop hunting is like a whole big domain on how to prevent that. So one thing if you launch a product and you are looking for signal don't start these rewards points or other referral stupid [ __ ] like it's a trap. you won't know if these people want to use your product or they want some money in return. Just don't do it. If you want to grow, sure, you can do it.

But like when you're looking for signal, it's not the moment. And like with Kiwi, when we had the initial NFT, it was non-transferable. You couldn't send it to anyone because we didn't want more noise from speculators who buy it to sell it later on OpenC. So this is the first thing. On the flip side, there's rewarding positive behaviors with Scooby snacks.

So, you know, on Kiwi, we had karma like on Reddit. So, if you post good links, people upvote it, you get more karma points. And you know, these people, they landed in the leaderboard. We credited them in our newsletter. They got some social scooby snacks for being a good user.

And if they were a bad user, we had guidelines that said, well, if you post links that are totally off topic, we can basically ban you from the app. So, this is a very simple thing you can do, but still most projects don't do it. So, uh, another thing is people don't use the product. So, it's nice to talk to your users. And at Kiwi, like when you minted an NFT, we invited you to our Telegram channel.

That gave us access to a few hundreds of our most engaged users and we could just DM them any time. We spoke with at least 200s of them, probably more, either through Telegram or video chats and we learned what are their main problems, why they use Kia, what could we improve. Sometimes I felt like this, you know, Jeb has sweetness and like I was like, do you want to talk about Jesus? But like, you know, it was worth it. like it's sometimes weird to DM these people but most of the time they are very happy to chat.

The other thing is uh if you have cat you have to put them in these boxes. I was just checking if you are listening. Uh I mean like you need to segment the feedback that you get right. So like at Kiwi we had three groups of users. People who submit links, people who upvote and comment and people who just read.

So when we got feedback, we were like, "Okay, what's the bottleneck?" Well, we don't have enough content. Okay, so let's build a Chrome extension where with one click, you can submit a link so you don't need to type in anything. Okay, then we were like, okay, we don't have enough comments. Okay, so let's build a better comments editor.

Okay, we don't have enough readers. Okay, so let's build a better feed. So then you you know what things you are f focused on and you know what works and you know what doesn't. Uh the other thing is speaking with your uh ex users. So most of the time they will be like super polite.

They will say you oh you know I stopped using it because I'm so busy. But like when you dig in they will tell you you know the truth and I remember one guy who said yeah you know what like I got logged out like five times. I tried to log in and I was getting logged out. I was like [ __ ] it. I don't want to use it anymore.

So then I knew that we have to fix something related to login. So this is one of the way to get some more signal. Uh the other thing you know small and diverse market as we said. Well which we need the pool would you prefer to serve the normal one or tuxedo one? The tax.

Okay. Why exactly? Yes. So yeah, it's it's called, you know, high ARPU user, right? Like high average revenue per user.

So like if you look at a last month, A charged $60 million in fees on 25,000 users. That's $2,400 per user, which is insane number. Not all of that is the revenue. About like 110 of 18 is the revenue, but still it's crazy number. And they could do it.

They and they make millions of dollars because there are whales that, you know, borrow and lend millions of dollars. The same with Blur. I don't know if you remember but there was a moment when NFTs were dead and then Blur focused on professional NFT traders and they still made a lot of money because these traders were you know buying 10 punks in one trade so the volume was also very high. So this is one way to deal with a small market. The other way is to be the sensei from Ninja Turtles and let it grow.

So like in 2022, privacy on Ethereum was a super tiny niche, but rail gun was around since then and they were building their presence and now they're like a top of- mind solution and today when the market has grown they make $5 million in revenue which is you know a pretty significant market. Same happened with OpenC and NFTs. I don't know if you remember but OpenC has been around way before the NFT craze and they were building their presence and when the NFT craze happened everyone was like okay where do I trade NFTs open C of course this is like a first thing that comes to my mind another thing is uh you know crossing the chasm uh so bringing normies in this is what NBA Topshop did I don't know if you remember that but they just had NBA partnership collectibles and easy way to buy them. An average Jos could find it relevant to buy a dunk of LeBron James. Another way another example would be Poly Market.

You know, they brought prediction markets to mainstream partially because they correctly predicted US presidential elections, but also partially because they had amazing social media account that it's like super funny and very interactive. So this is also something you can do though this is a pretty hard thing uh to uh focus on the other thing retention. So this is I hope all of you recognize that this is a toothbrush. Uh so like this toothbrush I put it here because Larry Page has this idea of toothbrush products. So they only buy companies that where the product you use it once or twice a day and it makes your life easier.

So the way like if you do it what's great is first of all your product is very clear like you know what do you come for if it's a toothbrush you use it to brush your teeth you don't use it to I don't know make your spaghetti right and the other thing is you get feedback daily because if people use your product daily you get feedback very often so for us at Kiwi it was you know we are ser serving Ethereum content every day and you use it once once or twice and whenever we had great content, we saw our usage going up, which is obvious if you think about it because that's what people come for uh to our app. The other thing is instant noodles. Uh so let's say you want to eat something, right? You can have instant noodles. You just pour hot water and you have a meal ready in 1 minute.

But it's not the best meal of your life. You can alternatively just call a restaurant and in 30 minutes you just get amazing meal but you have to wait 30 minutes. So you can think about your product in these two dimensions. When we are serving Ethereum content most of that were Ethereum essays that were pretty long like you had to read it for like 10 15 minutes. So we are more like a restaurant.

So we were thinking okay how can we give this more like instant noodles kind of content? How can we give these peoples this easy bites? So we figured out that on hacker news most people read comments. They don't even bother clicking the links. So we are like okay let's make comments more prominent in the feed.

Let's add emoji reactions. Let's make it super easy to add comments so we have more of them. We even experimented with more radical examples like having memes or dashboards because if you see a meme in two seconds you get dopamine boost if it's a good meme. Same with dashboards. You don't need to spend 15 minutes digesting everything.

So this is also another thing to think about it. And like let's say you on board your mom to a DeFi aggregator app and would it be a good idea? Well, she would be like this bird at the meeting, right? Like she might use it once but she probably wouldn't fit in. So on a flip side, if you on board a D5 veteran who uses the makes five transactions a day, he will probably retain better.

So it's all about this product user fit. You know you most people think about product market fit but market is just a big group of users. So you can think about okay which users have the highest potential to retain when I get them on and focus on them instead of you know focusing on your mom or like trying to get viral on Twitter where you have many random people reading your stuff. And the last thing, the last problem uh so uh there's this concept called little channels by Andrew Chen from A6Z and his idea is simple. If you have 100 users and you get 10 more users, you've just grown 10% which is amazing.

So like when you're a small project, you don't need to try to get viral on Twitter or like on TV radio or like whatever. You don't need this mass channels. You can go to subreddit. You can go to some obscure Discord channel. You can go to a meetup in your city and just recruit these people one by one.

And this is by the way how Zora got their first users. They were just DMing artists on Instagram and saying, "Hey, well, you know, you do cool stuff, you can put it on chain and make some money." And like with Kiwi, we experimented with that a lot. And one of the best examples, there were some misses that we had, but some great example was when we got to the ENS ecosystem call and about 50% of people that were at this call sign up right away. Why?

Well, because they care about technology. they don't care about token price that much. They were really interested in what we are doing. Another thing is going to uh if conferences of course like this one that's why it costs a lot of money to get sponsorships at if conferences because people who come here they don't come to hear about tokens they come here to speak about tech. So here the fit is good and whenever we went to conferences from you know LA to Bangkok we always recruited users in real life and we did it pretty religiously.

So I know it's a lot. You can scan this QR code and I prepared like a blog post version of this so you can just look at the notes when wherever you want because it will probably take some time to get the presentation out. Uh so yeah I will give you like 10 seconds uh to scan it and uh yeah five 4 3 2 one. Okay. And here are some uh closing remarks from me.

I know it could be depressing to hear about all this harsh truth, but I think about it a little a little bit differently. I mean, if you're a consumer startup founder, you sit in this 24/7 casino, but you don't have this, you know, typical machines. the machine you are in front of, you have to put features and distribution in the right order and you click this big button called ship. And if you're lucky, you will hear this like blinking bling bling bling bling and there's like a jackpot PMF. And the thing about this machine is that even if you're a super experienced founder or an amazing VC, it's very hard to predict if it's going to hit the jackpot before you click the button.

Even the best VCs has less as 50% hit rate. So it's more arts than science in a way. And it's you can have the feeling for the trend for the market but still don't get some details right and like even for people who create it's hard you know you know like Black Sabbath right probably you heard about them so their biggest hit paranoid the one that they ended their last ever concert with was just an album filler that they wrote in 20 minutes they were like okay we need one more song for the album we'll just write this and they they they just get it done. You know, like Quen and Tarantino thought that Pulp Fiction is going to bomb and so did all his director friends minus one person. And like actually one of his friends, he was like, you know, Quinn just if you go back from Khan, I will tell you exactly what's wrong with this movie.

But then Tarantino came back from Khan and he won the main award. So there was nothing to talk about. And like even like Shank Redemption, which is number one IMDb movie of all time, totally bombed, was a total disasters when it comes to cinemas. There were like empty cinemas. No one wanted to see it.

And it became a rental hit. So like when when it got to video rental, people got actually excited about it because it's kind of movie that you need to digest. It takes like three hours to watch and so on. So, what I want to say is that you never know before you launch. Sometimes you may think that it's terrible, but it can actually be really good.

And I hope that you didn't get discouraged and you got some ideas here. So, you know, just launch it and good luck.