Looking to identify the Web3 tooling industry’s critical challenges and offer possible improvements, we talked to 15 founders of high-profile tooling projects that demonstrated consistent growth, despite the bear market, including 1inch, Ava Labs, Lit Protocol, XDAO, CARV, Сrastonic, CryptoRank and others. We also surveyed 7 market experts, most of whom are venture capitalists, such as Blockchain Fond, Scytale Digital, OP Crypto, etc.
According to Messari, tooling projects are attracting a big chunk of investment. Our interviews with VCs proved it: while investors are hesitant about other Web3 sub-industries like crypto gaming, they are willing to go through hundreds of tooling projects in hopes of finding a gem.
Before we jump to our insights, let’s define what we consider tooling. The tooling industry includes a wide range of products designed to enhance decentralized and Web3 platforms.
DeFi tools, in particular, are a massive sector offering solutions for analytics, statistics, storing, trading, screening, tracking, liquidity, portfolio tracking, and a lot more. Think of aggregators, oracles, Web3 bridges, MEV tools, and many others.
Looking at the average customer, over half of the market participants are newcomers who have been active for less than a year, and only 11% of all crypto enthusiasts are engaged in development. Thus, the current user base is not Web3-tech-savvy and needs a special approach.
This article aims to help Web3 companies find obvious solutions to not-so-obvious problems.
The respondents have mentioned a number of similar problems, but growth seems to be the stumbling block for all the tooling projects. Disassembling the growth issue into three layers will help cover each angle.
Bad market vs. poor narrative
Most non-crypto audiences view blockchain as something either too complicated or speculative. Yet, if crypto, web3, and blockchain are only valuable as long as the token prices are on the rise: once the investment appeal disappears, investors leave until the next bull run. And since the market comes in cycles, the same scenario will continue recurring.
Poor narrative is one of the most obvious yet ignored issues that get in the way of crypto adoption. There are only a few examples of educational materials based on solid storytelling. Resources that include elements of entertainment is one thing the crypto space desperately needs.
Slow and expensive user gain
According to our research, technology development, and investing activity run miles ahead of user awareness. In Web2, people download the apps they need, then proceed to use them. In Web3, the apps are fishing for users since the products are too complex. John Navas, VP of business development at Ava Labs, describes this problem as follows
“We need to do a better job explaining how to use technology, not just work on the technology itself.”
Currently, we are at the transitioning stage when the developers' era gives way to the era of product managers. The second layer is storytelling, where problem-solving, not technology, comes first, and the products cover the users' needs. After all, if the product is designed to address a critical market issue, it will find its users regardless of the market cycle.
A quest exploring the Web3 world for those who already have a wallet but are not sure what to do next
An underlying concept unites many Web3 products: the way they communicate with their users is too conservative and not engaging. For instance, reading monotonous technical documentation and delving into a descriptive case study are two very different experiences.
Second-layer problems demand educational cases. And the harder the case, the more engaging its delivery should be. Based on various studies and proven cases, incorporating game elements into learning improves student motivation, engagement, and learning outcomes.
Introduce gamification and storytelling that trigger emotions while alluring users with exciting quests, and they will turn into devoted community members. The bottom line is that fun interactive activity is the shortest way to the users' hearts (and minds). studies proven cases
Direct interaction with the product
"We are currently at a turning point for the industry - the paradigm of working with customers is changing. It is time to prioritize user experience and significantly reduce the barrier to entry into the world of Web3". Vlad Shavlidze, CEO and founder of XDAO
The potential Web3 audience doesn’t know anything about crypto. Requests like Save your seed phrase, Connect Metamask, or Choose the network, may sound like a walk in the park for you, but a new user will have absolutely no clue. And confused people tend to quit things quickly.
Why don’t beginning traders and investors use DEXes, even though they are cheaper and safer than centralized exchanges? Because most of them have no fiat on-ramps, placing an order is like falling down the rabbit hole.
Web3 makes people change their user experience, not just Windows to macOS type of switch. It’s a lot more complicated. The projects won't make it too far until they prioritize UI/UX on an in-house core expertise level.
A simulation of crypto wallet basic functions on Metamask’s educational portal
Jordan Greenberg, the Head of Partnerships and Developer Relations at Lit Protocol, describes a perfect Web3 product as one that doesn’t need the Web3 affix
“Tools have to be built for the masses, and the masses have to use them without knowing that they're using them.”
Web3 developers and where to find them
Another issue that may seem slightly out of the loop but is, in fact, a big part of the complex problem. Finding good Web3 specialists is a challenge since many experienced ones see no benefit in leaving the comfort zone of Web2. Thus, the market for blockchain developers is small, and there is a lot of competition for the specialists.
Сoding educational game for TON by Plearnyx
In some cases, it’s not just a matter of comfort, but according to Adrian Larsen, the Head of Research at Blockchainfond,
“It's a career risk to go into the blockchain field.”
In the Scandinavian region, in particular, developers don’t venture into Web3 as it may close the door to the Web2 space for good.
Education and engagement may help.
“We are trying to showcase more about who the team is, what's up with
the culture and involvement like in our company,”
Shares Ho Chang Jun, Chief Strategy Officer at Switcheo Labs.
This issue covers both the first and second layers: the good things will start once you change the narrative, even slightly.
Our success formula for growing the tooling user base involves introducing relatable use cases, explaining the products and processes in plain terms, and delivering a smooth experience.
user base growth = use cases + speak users language + smooth ui/ux
“Know what value you're going to create, what problem to solve, and what value to create by solving it,”