Multicoin Capital: Understanding the Web3 Growth Stack – How Does It Drive User Growth?
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Multicoin Capital: Understanding the Web3 Growth Stack – How Does It Drive User Growth?
In 2023, a Web3 growth stack will emerge.
Navigating Web3 tides with focused insightsWritten by: SHAYON SENGUPTA & JOHN ROBERT REED, Multicoin Capital
Translated by: TechFlow
We are increasingly interested in an emerging category. Internally, we refer to this as the Web3 Growth Stack—tools used by product managers and marketers to acquire, engage, and retain customers using Web3 technologies.
In Web2, the growth stack consists of a vast array of tools, platforms, and analytics systems designed to help product and marketing leaders drive growth. These tools enabled structured processes around user acquisition, measuring retention and engagement, and tracking conversion and monetization—the foundation of consumer internet businesses. Many of these tools have become indispensable in modern software development and thus represent highly durable businesses. However, these tools—most built in the previous decade—are either unwilling or ill-suited to serve Web3 products and applications.
For example, some of the world’s largest ad networks (AdSense, AdRoll) have shown disinterest in the crypto ecosystem—or outright banned cryptocurrency advertisers. Additionally, some of the best engagement and retention tools (Segment, Iterable, Mixpanel) ignore the rich data available on-chain, which is analogous to in-app engagement for Web2 products. Worse yet, no one has seized the obvious opportunity to programmatically link in-app activity with payments—one of the biggest opportunities. As a result, Web3 builders are largely flying blind and consistently lag behind in the great battle for user attention online.
However, this is beginning to change, as 2023 will see the emergence of the Web3 Growth Stack.
Accelerating Growth Using Web3 Primitives
The primary catalyst creating this opportunity is the deep integration of two core cryptographic primitives into growth tools.
On-Chain Attribution and Identity
Third-party data, cookies, and fingerprinting are foundational building blocks for audience segmentation in Web2 advertising, serving two core functions: attribution and identity.
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Attribution: The analysis of when, how, and through what events users interact with links, pages, and apps (via touchpoint trackers, referral headers, cached data).
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Identity: The aggregation of user activities used to build profiles (session cookies, location tags, on-chain data, etc.).
Web2’s attribution and identity infrastructure enables the creation of rich profiles that can be aggregated into cohorts and targeted with ads and other campaigns. While these techniques can also apply to Web3 products, Web3 offers its own tools for identifying users and their behaviors. Specifically, public keys, Web3 domains (like .eth and .sol), on-chain credentials, NFTs, and other on-chain activities represent a new dataset for building user profiles and segments.
Ownership of on-chain assets and emergent behavioral data provide stronger signals than passive browsing data because on-chain data is inherently financial. Minting an NFT, participating in governance votes, or staking protocol tokens are all meaningful signals tied to specific interests. For decades, advertisers have dreamed of distinguishing visitors from actual buyers—on-chain data makes this possible.
Identity and attribution are critical to growth; linking crypto-native states (wallet addresses and behaviors) with Web2 states (app and browser interactions) will unlock deeper insights into user psychology. Web3 attribution and identity layers are only just emerging. For instance, Spindl is building one of the first Web3-native attribution platforms, actively developing solutions that combine Web2 and Web3 identity and engagement.
Native, Bidirectional Value Flows
The second primitive is native, bidirectional value flow. In “Unlocking Payments on the Crypto Rails,” Kyle explains how crypto rails allow businesses to send arbitrary units of value directly to consumers visiting their app or website. The ability to move any amount of any asset to any group of individuals represents a step-change improvement in running campaigns and distributing rewards and incentives.
As mentioned earlier, one of the biggest opportunities in the Web3 growth stack is tightly coupling in-app events with programmatic, on-chain payments. Web2 products lack the ability to send value to users in real time, but Web3 products do. This is a powerful native incentive and a key reason major brands like Nike, Starbucks, and Tiffany are incorporating Web3 into their loyalty programs.
Once these primitives are embedded at the core of new tools and products, the design space for growth tools expands fundamentally.
Exploring the Design Space of the Web3 Growth Stack
Most product and marketing organizations view growth as a funnel. In practice, they organize campaigns, product launches, and user-specific experiences to minimize leakage across the funnel. The ultimate goal is to target specific user groups based on behavior to increase usage and establish a repeatable growth strategy that compounds over time.
Let’s explore how Web3 concepts impact each stage of the growth funnel—from top-of-funnel user acquisition down to engagement and ultimately retention.
User Acquisition
User acquisition describes how products find, obtain, and activate new users. Demand generation—primarily via advertising—is typically the first step.
Roughly speaking, to run ads, you need:
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The ad itself (creative);
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An audience segment (targeting);
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A publisher (placement);
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A mechanism to match ads with publishers (exchange or direct sales).
To deliver ads in real time on a publisher's site, there’s a two-sided marketplace between publishers and advertisers, mediated by an exchange (advertiser bids vs. publisher ask prices).
Advertisers aim to reach users who meet certain characteristics or criteria correlated with higher conversion probabilities. When users see relevant ads, they may have a better experience on the publisher’s site.
Combining on-chain data with off-chain first- or third-party data could enable more comprehensive user profiles, leading to higher-quality segmentation and cohort building. For example, if Nike were launching a collectible digital sneaker NFT, it would be valuable to know whether their target customer was active on StepN, holds more than 150 SOL in their wallet, or has participated in any metaverse.
There are already crypto-native ad exchanges (Slise), networks (Hypelab), and demand platforms (Myosin). We expect that as inference around user behavior becomes increasingly accurate and aligned with high-fidelity on-chain data, this will lead to better segmentation, cohort building, and ultimately higher-quality experiences for end users. Ad infrastructure gains inherent network effects by mediating transactions between advertisers and publishers and has the potential to capture significant value.
But this is just the tip of the iceberg. As on-chain identity data combines with in-app event data, we expect improvements to the ad unit itself. For example, when a user sees a banner ad, she can view it (impression) or click it to visit a website (click). A Web3-enabled ad unit might allow the target user to claim a reward or make a purchase directly within the ad without leaving the page. This could have downstream impacts on core ad metrics such as cost per click (CPC), cost per impression (CPM), and cost per transaction. For example, imagine:
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An ad displaying an NFT collection allows users to mint directly from the publisher’s page—without redirection—and rewards users (or the publisher facilitating the transaction) with tokens. This alone reduces the user journey by at least one click. This concept resembles Facebook’s lead-generation ads, which shortened the funnel by keeping users within the publisher’s experience instead of redirecting them away.
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Once websites become wallet-aware (Shopify is already exploring “token-gated commerce”), they should dynamically adapt based on user preferences and perceived value to the advertiser. As part of this new “Web3-reactive” website, affiliate links could dynamically adjust based on consumer role and value. It’s easy to envision advertisers paying more for returning users if they can prove increased repeat visits, retention, or LTV.
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Ads that automatically airdrop tokens or send messages to users regardless of whether the audience engages with the ad itself. This allows advertisers to directly target users based on intent.
Beyond ad innovations, we believe the design space for direct-to-consumer marketing in crypto is ripe for development. Most notably, recurring communication with end users represents a powerful user acquisition tool.
Peer-to-peer messaging is still in early adoption, with protocols like Dialect, XMTP, and Nansen Connect establishing standards for messages and notifications. These tools are essential components of Web3-native lifecycle marketing, much like Twilio, Iterable, and Intercom pioneered in the past decade.
Today, advertisers blast messages hoping to capture user attention at the right moment. Tomorrow, advertisers could price message delivery and offer embedded economic incentives for users to read them. We can imagine future dynamic inboxes attaching value to messages, where email/messaging apps automatically surface high-value messages to the top. Inboxes themselves could earn revenue from these rules while giving users flexible filters or configurations, enabling advertisers to target high-value users.
Engagement
Once users enter a product, understanding how they interact becomes crucial.
Who participates, and what drives them? Where do they spend the most time in the product, and where should they spend more? Who opened the product once versus 20 times in a month? At what stage in the flow do most users drop off?
Answers to these questions provide insight into the product’s future direction and how to satisfy customers from the outset.
Web2 tools like Segment and FullStory provide granular data to product teams about what users do within their apps. Every login, click, scroll, and purchase is a timestamped event, revealing how users interact with the product.
Dashboards from Mode, Looker, and Heap illustrate overall retention by showing how cohorts perform across acquisition campaigns and product improvements. Fine-tuning products based on engagement data from highly active users versus high-churn groups helps inform key decisions.
Crypto-native teams like Raleon, Merlin, and Garden are experimenting within the design space where Web2 engagement tools intersect with on-chain attribution and identity. If product and growth teams can establish causal links between subtle in-app behaviors and users’ on-chain roles, they can make smarter decisions at pivotal moments in the product lifecycle.
Beyond bundling on-chain transactions and behaviors, a key difference between Web3 products and their predecessors is that they often serve as marketplaces for trading digital goods with explicit financial value. When there are economic incentives to exploit, a race to the bottom ensues—and bots win. This has plagued Web3 teams, who lack proper tools to combat bots. Web2 brands entering Web3 will quickly learn they also need growth analytics to help identify and defend against Sybil attacks.
Sybil attacks can severely undermine a product’s sustainability. Granular event analysis and evolving proof-of-humanity mechanisms should address these issues and help product teams distinguish real users from bots.
Future user-facing products will leverage interconnected on-chain protocols, but most users won’t interact with the protocols directly—they’ll use applications built atop them. Protocol teams are deeply interested in how end users utilize core primitives. Engagement data at the product layer is far richer than the on-chain data accessible to protocol teams and contains many additional attributes. We believe this product engagement data could even become a form of payment from product teams to protocol teams in the future.
Yet even more exciting is what product teams can do once they clearly understand who their customers are.
Retention
More mature growth teams care deeply about customer loyalty and retention: retaining a customer is usually cheaper than acquiring a new one. Web3 identity and attribution data give product teams new ways to achieve this, potentially offering stronger incentive models than those currently available in Web2 products.
The core promise of cryptographic primitives is coordinating large-scale actions through incentives. There’s a huge opportunity to enhance Web3 retention using these primitives. For example, free-to-play games can offer NFTs or fungible tokens to encourage daily returns. A crypto-native version of Snapchat could release serial collectibles or verifiable Snap scores, providing quantifiable social status for continued engagement. A key unlock for Web3 retention is that if products previously distributed rewards in the form of status and utility, they can now do so in forms of status, utility, and financial value.
Several projects are independently building infrastructure to enable this:
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Galxe is building on-chain credentials and POAPs;
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Chains like Aptos and Optimism are adopting targeted airdrops for early adopters and builders;
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And NFT projects are leveraging token gating (e.g., derivative mints, community calls, parties) to keep community members engaged and retained.
These growth teams showcase objects of status or utility delivered through products, which permeate user communities and reinforce their value. Teams like Rabbithole, Layer3, and Sonder are pioneering in this area.
Rewards are necessary but insufficient for sustained user engagement. The ideal of Web3 is sovereignty, ownership, and permissionlessness—especially contrasted with the platform lock-in typical of last-generation consumer products. Data portability and composability are promising because they empower users with ownership over the platforms they build on, but they still need to develop customer affinity like consumer products did over the past decade.
Building customer affinity through repeated use of crypto will heavily depend on user experience and proactive retention. Historically, platforms and marketplaces differentiated themselves through discovery, management, trust, and reputation. Leading crypto platforms like Binance, Magic Eden, and Phantom provide greater convenience than competitors, enabling them to capture user attention. Web3 products that prioritize end users—whether by abstracting interface complexity or offering dedicated support teams—may benefit from the next wave of on-chain user attention.
New Incentive Models
At the start of this article, we argued that the two most important patterns in Web3 growth are crypto-native attribution/identity and native, bidirectional value transfer.
Looking ahead, regulation suggests as strong rules like GDPR and CCPA take effect, invasive data-tracking tools (e.g., cookies, event trackers, fingerprinting, third-party data markets) may be phased out in the future. As this happens, new privacy-preserving platforms, data sovereignty tools, and next-generation digital growth platforms will replace the old ones. Beyond the ideas above, we’re excited about targeted solutions in the following areas:
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DataDAOs—Can we build incentive systems allowing users who opt to share their data privately to capture some of the direct value they create for advertisers and publishers?
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Privacy-first ad exchanges—Brave’s Themis uses zero-knowledge proofs to build a decentralized, on-device ad exchange. Attribution and performance guarantees are trust-minimized, with user privacy as the top priority. Can other companies deliver high-quality, privacy-preserving ad exchange experiences?
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New types of crypto-native ad exchanges and ad units—Will new ad units emerge that leverage cryptographic primitives, either at the UI layer (e.g., creating NFTs by clicking ads) or at the ad exchange/data layer (e.g., hosting ad exchanges on Solana, storing ad content on Ceramic or Tableland)?
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Sybil resistance and proof of humanity—When users can own many addresses, how can they prove those addresses are controlled by humans rather than bots?
We believe crypto is entering a golden age of experimentation for applications and consumer-facing products, and growth tools are critical to their success.
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