The Experience Layer Wars
Every bear cycle, a select few quietly build while speculators are grappled with fear. What are the next great wave of founder’s buildings? And what is the next wave of capital chasing?
The real opportunity for the next cycle, it seems, will come from the experience layer.
What is the experience layer? And why are so many groups trying to capture this class of dApps, services, and infrastructure partners?
Before we dive too deeply into this thesis, we must lay out the current landscape of actors in this market:
In previous cycles, capital came from crypto funds, independent angels, and ICOs. As time passed, many of the key actors in this space realized that in order to stay competitive, they would be forced to build out their own ecosystems. Not only would these ecosystems require capital, but it would force these actors to think and behave like funds. If a protocol did not competitively invest in experiences, it would stand to reason that their competitor would do so, creating an environment where entire ecosystems were seeded with venture-like strategies (see Solana). The progression of this theme required that Layer 1s, Layer 2s, exchanges, and certain infrastructure providers would be forced to deploy their own VC-style funds to attract activity on their respective platforms.
As we move into 2022, this phenomenon has increased dramatically. These new VC-style funds, along with actual crypto funds and angels, are competing aggressively for applications that can bring users and transactions to their networks. They are all competing for experience layer applications.
The experience layer is all consumer focused applications, experiences, and platforms that onboard the next wave of users to the world of decentralized tech, blockchain and cryptocurrency. They will be built by crypto native teams that can synthesize product, design, and psychology from web2. This sounds straightforward, but finding a team with a good blend of these characteristics is rare because these attributes are sometimes diametrically opposed to one another.
There has never been a better time to be an experience layer builder. Many, if not all of the protocols are vying for experiences to attract users to their ecosystems, and are willing to pay top dollar for this privilege. Some may incubate directly from their own talent pools, while others are agnostic and will require partnerships and technical integrations. Regardless of where they are born, all protocols and funds are on the hunt for top quality experiences.
This is also true for the exchanges and infrastructure adjacent groups. Most of them have already raised significant funds for this purpose: to attract more action, transaction volume, and activity on their respective platforms.
Everyone is looking for the right experiences.
What does this mean for the industry at large? And how can I take advantage of this as a builder, protocol, and investor?
Builders
- Consumer grade applications are fetching a premium.You must marry web3 development with good product and ux thinking.
- It is no longer enough to have a good product with sub-par branding. You must design and develop a brand that is approachable and digestible. This includes a good name!
- Building out your architecture in a way that can support multiple protocols and platforms simultaneously will make you incredibly appealing.
- Try to bring on the right balance of partners so you cover many different domains simultaneously.
Protocols
- Hire product managers for your protocols! You must make the architecture of your stack easy for builders to build good experiences.
- Seek independent builders who can help you go cross chain.
- Incubate good experiences that can bridge across communities.
- Partner your fund’s capital with other capital from diverse backgrounds. It’s not recommended to completely back a project on your own (creates a lack of capital diversity in your ecosystems).
Investors
- Brand becomes king. We are moving from technical based value propositions to non-technical based value propositions . Making sure you understand how to assess and target consumer/brand based applications with a solid technical foundation is critical.
- Many crypto-investment analysts may not have an eye for investing in experience layer applications, and could miss the next great consumer focused brand because they have been thinking in terms of protocols, technologies and infrastructure.
- Forge alliances with capital groups and partners that sit near the experience layer and can attract non-technical value (celebrities, established brands, talent). They will offer a window to partnerships that will make your experience layer portfolio companies that much more valuable.
