The Future of Crypto-Native Consumer Products: How Web3 Digital Identity Delivers Real-World Utility?

Written by: Mercedes Bent, Partner at Lightspeed

Translated by: TechFlow

Imagine a friend of yours is about to go on a first date through Bumble. She might say, "I’ve already looked him up online—he was on the college soccer team, works at a startup, has an adorable Labrador named Dusty, and bought a house just a few miles from me seven months ago. In case you never see me again, here’s his contact info."

A little online sleuthing can reveal a lot about someone you've never even met. But how do you know any of it is true? MTV’s reality show "Catfish" repeatedly proves how easy it is to fabricate an online identity.

So what’s the solution? Yes, you guessed it—blockchain.

Blockchain-based decentralized identity platforms will play a crucial role in enabling people to prove who they are.

With decentralized identity, within a few years or quarters, that “friend” could view her date’s digital identity profile, which lists the digital communities he belongs to, events he's attended, causes and artists he supports, the PFP NFTs he owns, and any tokenized physical goods in his possession.

Today, all this data is already recorded on the blockchain. People’s crypto wallets already reveal vast amounts of information about who they are and what they do—as long as you know their wallet address. And that’s exactly the problem digital identity platforms aim to solve: how to display a person’s entire on-chain activity in a simple, user-friendly way.

A Truly Unique Crypto Consumer Product

Digital identity platforms are one of the most exciting consumer product categories in crypto for several reasons:

1. They directly leverage blockchain’s core innovation—the verifiable, immutable record of who did what.
2. Owning the identity layer is one of the most strategically valuable positions on the internet—as demonstrated by the decade-long battle among Apple, Facebook, and Google to become the default single sign-on provider for Web2. (Meta/Facebook led early but is now losing to Apple, which entered later but executed better.)
3. Digital identity is a rare example of a crypto consumer category using blockchain to enable truly novel functionality.

There’s already extensive discussion within the crypto community about the potential of these new products. It’s not a question of *if* this will happen, but *who* will build it.

Many believe wallet providers (like MetaMask, Phantom, Coinbase Wallet) are the de facto leaders in this space, but I don’t believe wallets will ultimately become our decentralized digital identities.

Why? Because like bank accounts, people maintain multiple wallets for different purposes—and because more mainstream users entering crypto increasingly don’t want to self-custody or consciously manage wallets.

The winners will be either fun, useful, or both.

This becomes clear when we look at how dominant Web2 identity providers emerged:

• Google: Ubiquity and convenience in search and email made it a central hub.
• Facebook/Instagram: Easy online connection with friends and photo sharing.
• AppleID: Seamless login across multiple Apple devices.
• LinkedIn: Digitally replacing offline resumes with professional networking.

In short, whoever creates a compelling reason to aggregate and update user profiles—either by providing a useful tool or generating entertainment value—will dominate the blockchain identity space.

A Crowded Field: The Game of Identity Thrones

Numerous startups are vying to create the Web3 digital identity platform.

For digital identity profiles to thrive, users must have incentives to update and enrich them.

Successful platforms give people strong reasons to use them—whether through network effects (everyone else uses it), real-world utility (profiles help land jobs or find dates), or economic incentives (others pay to contact you if your profile is appealing).

Beyond that, practical factors come into play—such as which platform has the broadest distribution, the most complete view of on-chain activity, the ability to tie advertising and marketing spend to profiles, the most compelling real-world use cases, the largest first-mover advantage, and which players stand to lose the most if they don’t capture the Web3 identity market...

Portfolio aggregators like Zerion or Zapper (in a multi-chain world) or CeFi fintech companies like Coinbase or LemonCash (in an interoperable cross-chain world) would be my top picks.

Here’s my take on who stands the best chance of winning in this space, viewed through the lens of human emotional needs:

1. CeFi Fintech Companies (Coinbase, LemonCash): These firms already provide the primary onboarding experience for new users buying crypto—arguably blockchain’s first killer app. Coinbase has been working on digital identity since 2018 or earlier, and many CeFi fintech companies now offer both fiat on/off ramps and self-custody wallets.

Emotional hook: The need to own and accumulate wealth.

2. Portfolio Aggregators (Zapper, Zerion): They offer comprehensive visibility into holdings across multiple wallets and already enjoy high user engagement.

Emotional hook: Dopamine from price movements, the need for financial security and peace of mind, seeing all assets grow in one place.

3. Domain Services (ENS, Unstoppable Domains): These are already used as public profiles to express crypto affiliations.

Emotional hook: The need for completion and establishment.

4. Identity, Social & Data Protocols (Lit, Ceramic, Lens, Arweave, CyberConnect): These open-source protocols mainly serve as middleware integrated into consumer identity profiles, but if any decide to move into the application layer (Lens is already experimenting with profiles), they could become major contenders.

Emotional hook: The need for security.

5. Wallets (MetaMask, Phantom): An existing digital identity layer required by many dApps to log in. Many wallets also offer privacy features (public/private keys) to protect content.

Emotional hook: The need for self-ownership.

6. Web2 Social Identities (Google, Facebook/Instagram, LinkedIn): They stand to lose the most if a new crypto-native digital identity standard takes off.

Emotional hook: The need for completion, influence, and connection.

7. Marketplaces (Magic Eden, OpenSea): They already hold primary data on any commercial transaction involving NFT ownership. Arguably, NFTs reveal more about our identities than fungible tokens ever could.

Emotional hook: The need for self-expression, creativity, stimulation, and connection.

8. Attestation Protocols (POAP, Project Galaxy): Independent sources of non-financial crypto activity—such as event attendance or community membership—create a new identity layer that simply didn’t exist in Web2.

Emotional hook: The need for belonging, connection, impact, achievement, and contribution.

9. Web3 Social Networks (DeSo, Bitclout, Entre): Existing social profiles that haven’t yet delivered massive entertainment value or achieved significant traction.

Emotional hook: The need for self-expression, creativity, influence, and connection.

10. Token-Gated Platforms (Collab.Land, Mintgate): Already function as authentication tools for token- or NFT-based communities.

Emotional hook: The need for belonging, connection, and influence.

11. Ticketing Platforms (Afterparty, Tokenproof): Tokenproof is effectively a proof-of-ownership platform that has found success in ticketing use cases. These platforms possess another form of non-financial crypto data not captured by others.

Emotional hook: The need for belonging, connection, and influence.

12. Ad-Supported Platforms (Layer3, Brave): They already have strong user stickiness and are primed to share data with external parties.

Emotional hook: The need to control and secure one’s own data.

13. Messaging (Dialect, XMTP): How we connect with others.

Emotional hook: The need for connection and belonging.

Taking Control of Our Identities

A fair question: If all on-chain activity is immutably recorded, why would users need to update or manage their identity profiles? Wouldn’t this happen automatically?

The answer is privacy.

People won’t be forced to share everything they do online; digital identity simply means that what you do online (and choose to share) becomes verifiable.

Thus, it ensures that the friend using Bumble won’t get catfished. She can trust her date is who he claims to be—while still leaving room for mystery to keep things interesting.

Original Link