A Framework for Consumer Crypto

As we wrote last year, we believe the most sustainable consumer businesses will continue to be built around passion. What we’ve observed is that blockchain has the ability to turn passionate audiences into passionate owners, unlocking experiences that previously felt either personally or professionally prohibitive (e.g., curating a museum, managing a record label, directing a TV show, etc.). Ownership in these instances isn’t strictly financial. In fact, we find that more often than not, these emerging behaviors unlock without the need of money changing hands. Instead, ownership inherently incentivizes a customer to participate deeper in these existing and newfound experiences. This is where we believe a unique opportunity lies for consumer.

A key focus since initially articulating this thesis has been around the expansion of passion-based businesses with blockchain, using crypto to create net-new environments for incumbent businesses. This can come in the form of new audiences (i.e., “the active consumer”), new products (i.e., ownership, active participation) and new business models (i.e., digital assets). Instead of looking at expansion as horizontal (driving net new users into an existing interest zone), we believe the path to value is vertical, achieved by going deeper within existing passion arenas. Our position is that when crypto works for consumer, it doesn’t need to interfere with the existing business but rather adds net new benefits on top. As a result, when we evaluate companies, we first look for evidence of passion in the existing customer base. Why do consumers care? — regardless of when or how crypto is eventually integrated.

A good example of this is showcased by our portfolio company Medallion, which enables artists to launch on-chain fan communities, tightening their relationships with fans and introducing actionable insights that drive both new experiences and economic opportunities. Since launching the platform 6 months ago, Medallion artists’ natively owned and operated communities have on average 8% more fans than in Facebook Groups, 38% more fans than on Reddit, and nearly 3x (182%) more fans than in Discord. Medallion’s value proposition is to foster a stronger direct-to-consumer line for artists, which enables them to drive more financial action down the funnel and gain deeper data towards what their fans want. Through these functions, Medallion opens up a desirable set of new products and experiences that weren’t capitalized prior for their biggest, most committed customers.

While Medallion focuses on music today, this model has the ability to expand across many more interest categories online. Starting with music provides a unique opportunity in that consumers can be fans of many different artists and genres, spawning a network of discovery and conversion that doesn’t exist commercially today. There are a few reasons for this:

1. Many artists and bands are unaware of the commercial opportunities they can leverage with their existing catalogs, merchandise and live events. While this is more obvious in sports (thanks to management and direction of the leagues), there is no standard in music to drive universal commercial approaches for artists and develop revenue streams outside the status quo of concerts and streaming.

2. There isn’t a platform for music fans to discover new music and gain benefits from their favorite artists in one place. This exists in services like Spotify, but the relationship remains relatively one-way and focused on a single use case (streaming). We believe music has the opportunity to build a two-way relationship, introducing the benefits of social with economics on top.

3. Data drives most online businesses, but in music, the data pool is scattered. Artists get data from streaming services, social networks, ticketing platforms, and more, and they’re responsible for pulling it all together to make sense of it and drive insights. A platform that provides a direct artist-to-fan relationship has the ability to give artists more information on what their fans want, what products would best serve them, and how best to re-engage them throughout the fan lifecycle.

Once proven with music, we believe this can expand to many fan-driven networks and showcase the ability to drive better products, experiences, and commerce through a direct-to-consumer line. And how big are fan-based, passion-forward businesses? Massive. The Medallion model could be disruptive to gaming, broad entertainment, sports, and beyond.

The example of Medallion shows that the value isn’t that it’s crypto. The value is that its matching consumer desire with artist need, creating an entirely new flywheel of passion in turn. With that, we believe the most powerful blockchain consumer platforms will use crypto as a tool, viewing it as a means and not the end state. We commonly hear this notion of “web2.5” as an intermediary between incumbent consumer products and web3. In many cases, this feels like a distraction. Instead of spending time in the “middle,” we employ a barbell framework, with existing consumer businesses supercharged by crypto on one side, and net-new crypto-native consumer businesses (with provable passion and usage) on the other side.

Companies on each side of this spectrum are exciting to us, so long as they can demonstrate durable passion outside of speculative behaviors. On the left side of the spectrum, crypto is largely abstracted away, used primarily as a tool for an existing passion vertical (e.g., gaming, sports, music, etc.). And on the right side of the spectrum, passions are new and crypto-native, like our investments in companies Crypto Unicorns (a crypto-native arcade), Cyber (a 3D metaverse world engine), and Curio (an on-chain game with permissionless and programmable game logic). On this side, there is a growing audience of people obsessed with the functions, culture, and behavior of crypto, and that in itself is a market to engage.

Spending time in the middle of this spectrum is difficult, as this notion of “onboarding” users is often subject to market cycles. Educating users about crypto and providing consumers with their first wallet is a noble goal, but it generally has far more headwinds than the other aforementioned strategies, and consumers are less likely to be interested and retentive as passion is unclear.

So, where do we go from here, and where are we looking? Some key themes for 2023 include:

• Loyalty & membership. We believe one of the largest benefits of blockchain is its unique ability to buy, sell, and trade digital goods. As our time and identity increasingly moves online, native infrastructure to accommodate this behavior becomes more critical. Along this vein, thinking of how brands can build new digital communities and experiences centered around ownership becomes compelling. How can digital goods open up new revenue streams and consumer behaviors, and how might brands leverage that commerce data in new ways?

• Multichannel & multimedia. Mobile is the dominant way we access the internet, driving 60% of global traffic. In emerging markets, many people exclusively use mobile. What consumer experiences uniquely enabled by mobile (geolocation, augmented reality, social, photo/video, etc.) might emerge?

• Communications. With an integrated communication layer, wallets and other blockchain standards become inboxes, and the inbox becomes the nexus of identity. How can individuals and companies reach their target audiences in new ways? We believe through this, we will see a large number of companies anchoring their focus on a consumer model that moves from purely social towards, now, socioeconomic.

• New media. In a world of public data, every company is a media company. There are various ways to think about how this emerging technology might affect the business of media. There are new standards and tooling in how to create. There is the ability to manage content in a world where control of distribution and licensing becomes a larger need from brands, publishers, and creators alike (see: AI and LLMs).

• Infrastructure for consumer scale. From modular architecture to key management to fiat on/off ramps, how can we set the foundation for consumer applications to reach scale in crypto? Today, most of these behaviors are isolated to each side of the barbell. When and how will blockchain scale be necessary, and in what vein?

At TCG Crypto, we continue to obsess over how new technologies will expand, impact, and create behaviors online. With new technologies and models developing at an accelerated pace, we believe we will see a renovation across how we currently drive business and behavior into an entirely new terrain. If you are building or investing in any of the above areas, we would love to hear from you. If you’re working on something outside of this scope, or think there’s an area in which we should spend more time, we would similarly be grateful to connect.

Team TCG Crypto

Disclaimers

None of the information discussed herein is intended to be or should be construed as financial advice, or an offer to sell or a solicitation of an offer to buy an interest in any security. Certain companies referenced herein are included by way of example and are not companies in which TCG Crypto has invested to date nor companies in which TCG Crypto intends to invest. The information set forth herein has been obtained or derived from sources believed by the author to be reliable and has been provided solely for informational purposes. Nevertheless, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness.