Product-Market Fit in Web3 in 2023

Perfect Combination for a Successful Product-Market Fit for dApps in Web3 lies in Five Steps

Product-Market Fit or PMF in Web3 is important for a successful blockchain project and decentralized app or dApps, we have come up with a five-step guide.

The product-market fit phenomenon is vital for successful decentralized applications and platforms in the Web3 ecosystem. There are a lot of tokens and projects fighting for survival or to keep their value on the market right now. These projects, products, and platforms are very different from what Web2 companies do, and they don\’t have specialized teams to help them find the product-market fit (PMF). They employ tools like rewards and tokens and a branding strategy that focuses more on movement.

The distribution of utility tokens via airdrops or bounties generating a community-operated workforce, can help Web3 platforms start their journey towards a suitable product market. Moreover, Web2 traditionalists find faceless brands, leaderless movements (Bitcoin), and product innovation without permission, more nuanced and difficult to comprehend.

The Perfect five Phases to Product Market-Fit in Web3

We have found a five-phase formula to achieve Product-Market fit in dApps. It comprises desirability, viability, and economic feasibility as the key components of the outcome.

Progressive decentralization

Crypto creators face the difficulty of creating a product that users want. Additionally, they find it difficult to carve a way to make it run successfully in a decentralized fashion. This is a challenging task since many of the requirements for creating a successful product from the start are product leadership, quick iteration, and a managed go-to-market. The reason is that it makes it more difficult to achieve community ownership and regulatory compliance, which ensure long-term health.

Progressive decentralization is the first phase of PMF. It starts off by drawing in the right crowds, and then progressively expands to decentralize while continuing to draw in more of them. This is the antithesis of the community created through Initial Coin Offerings (ICOs), where a group of speculators invested in a project and community that can be rather disconnected from reality.

Establishment of Utility for dApps

Finding and establishing utility requires time, investigation, and an iterative process. Early members of the community developed use cases and dApps and added some utility to the tokens. It fueled the expansion of the community. Foundational components of utility must demonstrate themselves when platforms, products, or protocols leave the early stages, particularly locking resources and capital.

Several KPIs, such as developer activity and total value locked, will help to evaluate these utilities. Several of these important criteria helps to assess the basic platform\’s liquidity and dependability. Moreover, it will draw users to the platform\’s story, liquidity, dependability, growth, and robustness. It will establish various utilities and ensure a shared objective to improve them. The utility establishment phase also solidifies community involvement, which is an important part of token take-off.

Gaining Momentum

The acceleration of utility is the next phase. It is achievable by introducing vectors of token programmability, and additional use cases including collateralization, flash loans, burning, etc. Many platforms and protocols do not transfer into the PMF\’s momentum phase. Different developers have triggered momentum vectors (such as DeFi, gaming, dApps, DAOs, etc.), providing multifaceted programmability and utilities in order to add momentum.

Building DeFi and dApps has demonstrated its capacity to fuel the expansion of stablecoins, automated market makers, lending protocols, etc. The platform layer and infrastructure will work better if it are more modular. Thus, to maintain momentum, with the exception of Ethereum.

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Network Effect (Alpha and Beta)

Any platform or protocol\’s moat is network effects, which reinforce and speed up functions centered on the thesis and stories. This phase has two steps; Alpha and Beta. A lot of effort is imperative on part of users as a result of network effects (Metcalfe\’s Law) like increased usage and user numbers. Additional tools are needed, including exchanges, wallets, media, and initiatives built on the fundamental platform or protocol, in order to flourish. This adds value to the existing token momentum.

The second phase is beta, also known as Reed’s Law. If the ecosystem\’s value is appealing, it will produce its own ecosystems, unfolding Reed\’s Law. As Reed\’s Law reaches a critical mass, it becomes a powerful competitive advantage. Moreover, it is challenging for rival procedures to overcome. The beta network effect adds unbreakable stickiness as new ecosystems firmly establish themselves on the basic platform, which is the pinnacle of PMF in Web3.

PMF and The Economic Flywheel

The combination of Metcalfe and Reed\’s equations can lead to exponential growth for a platform or protocol. It is achievable by igniting the economic flywheel. However, it is important to complete all previous phases. Moreover, participants\’ incentives must line up. In addition to providing extra opportunities for trading and growing user bases on top of those who can already interact through play, they develop into potent mechanisms to draw and keep capital within ecosystems. The launching of use cases like this on platforms is on chance, even in the Network Alpha or Network Beta phases of the Product-Market Fit. In the flywheel stage, there\’s a lot less risk that you\’ll likely experience.

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