Has the crypto bubble finally burst?
Over the last few years, we have been working with companies operating in the realm of Web3. The recent events in the Crypto and NFT ecosystems inspired us to work on a framework for evaluating the core business fundamentals of a Web3 company.
Web3 companies are generally providing services using decentralized crowdsourced resources. The crowdsourced resources, on their side, are synchronized using blockchains with specific reward mechanisms.
Smart contracts handle user transactions. And a whole open ecosystem is exchanging value using its own currencies.
This decentralization, openness, and independence bring the opportunity to build the foundations of a better internet. However, developing Web3 business models requires a new approach that differs from the traditional Web2 business models.
We offer a new perspective for evaluating Web3 companies inspired by the Business Model Canvas, developed by Alexander Osterwalder.
The expectations for Web3 companies
Over 4 billion people use the current version of the internet, referred to as Web2. The Web2 era brought us a variety of new services offered by a handful of companies (such as Apple, Amazon, Meta, and Alphabet). Unfortunately, it also resulted in hyper-centralization, misuse of information, misinformation, and social division.
With Web3, we have the chance to fix some of these problems using a new set of technical capabilities and design paradigms.
We can make the internet better for customers, contributors, entrepreneurs, and society overall. Here are some examples of the benefits that the new iteration of the internet could bring to different stakeholders:
Why do we need a new Business Model Canvas?
The original Business Model Canvas can describe almost any existing business in the “classical” economy. So why do we need to change it?
There are fundamental differences between a classical digital company and a Web3 company. We suggest adding a few new blocks to be able to capture their whole set of dynamics in a Web3 ecosystem.
When we assess traditional businesses, we analyze the value delivery part of the business, not the support systems like governance, contributor networks, or reward system. We also do not focus too much on macroeconomic factors like the US dollar exchange rate or inflation controls.
The Web3 companies are different. They are issuing tokens that serve as:
- a currency for value exchange,
- a reward mechanism for the participants,
- a voting right for company governance,
- a speculative asset for the community.
Instead of a company’s microeconomics, we are looking at an independent ecosystem with its own macro-economic rules:
- The Web3 company has a “central bank,” printing money following an internal schedule.
- They implement fiscal policies and inflation control mechanisms.
- If the project issues multiple tokens – it also provides an exchange mechanism for intra-app conversion and disposal of used assets.
- On top of these, the company might implement a stake-based representative democracy.
Another difference appears when we look at the split between company resources and partner resources.
With Web3 companies, the company’s legal entity is only one part of its ecosystem. Most of the services in that ecosystem are provided by affiliated contributors.
These contributors differ from the original canvas’s key partners because of their investment and commitment to a specific project. We also must emphasize the difference between a contributor and a (paying) customer. Even if the contributors might be customers and vice versa, the roles are set for the time of a transaction. It is similar to the ride sharing platforms. The driver and the passenger are different roles, even if the driver could be a passenger in another ride.
As we discussed above, the expectation for Web3 companies is to build a better version of the internet services. Therefore, the company’s social responsibility (including sustainable energy consumption, openness, and inclusivity) should be a critical decision factor for investors, partners, and customers.
Governance, Equity, Voting
The governance structure of a Web3 company could be decentralized or not, with different types of voting arrangements and corporate establishment. To evaluate a project, we need to know how the governance structure and decision-making reflect the decentralization principles.
A Web3 project or a company is as strong as the communities behind them. Therefore, we would like to know how engaged their followers and contributors are on social networks. For example, by checking the number of followers, topics, and mentions on platforms like Twitter, Reddit, or Discord. In this box, we can also note the potential network effect generated by the solution.
All those new building blocks add to a new version of the Business Model Canvas, described below.
The new canvas captures all the critical elements so that an investor or a business partner can evaluate a project, while also
bridge the gap between the people speaking the Web3 language and those comfortable with the classical business foundations.
Hopefully, using a common framework, we can compare different approaches and learn the best practices for building and running a Web3 company.
How to use the canvas?
We used the original Business Model Canvas and the Lean Canvas as inspiration. Below is the first version of the Web3 Business Model Canvas. Printable version here. It looks different but keeps the original spirit.
The canvas’s right-hand side (in purple) focuses on the business’s value delivery side. For example, what type of customer needs does it serve, and what assets does it handle? And what amount of external revenue does the business generate.
The center of the canvas (in blue) is focused on the company’s Web3 specifics – governance, centralized and decentralized operations, token economics, etc.
The left-hand (green) side is for the broader ecosystem of the project – community, regulations, social responsibility, and key partners.
Here is the complete list of boxes
Value Proposition – the collection of products and services a business offers to meet the needs of its customers. What are their customers trying to achieve – a one-time transaction for purchasing an asset or a permanent certificate registration?
Customer Segments – For whom are they creating value? Which ones are the most important customers? Are they serving customers in a specific domain (Gaming, Metaverse, DeFi, SSI)? Are they buying, renting, registering assets, or doing something else?
Customer Assets – there is a wide variety of Web3 use cases. Many of them involve handling Customer Assets. These assets could be:
- Transferable Assets – these are assets that can change ownership.
- Fungible: Crypto coins and tokens
- Non-fungible (NFT): Tokenized art, real estate, equity, intellectual property, NFT,
- Non-transferable assets are connected to the owner’s identity, like certificates, identifications, or personal data (e.g., soulbound tokens).
Cash Flows – the recurring revenues from paying customers and the costs of operations.
- Example revenues: subscriptions, memberships, transaction fees from customers, percentage fees from content providers, tips, donations, etc.
- Example costs: salaries, infrastructure costs.
Centralized Assets and Activities are the assets and activities the company owns and operates as a legal entity.
- Key assets – properties owned by the organization. Intellectual property, domain names, websites, trademarks, NFTs, tokens, etc.
In the case of Web3 companies, more centralized assets could mean more “traditional” value of the company but less Web3 commitment. It could also mean a cost structure similar to traditional companies.
- Key activities – description of the key operational activities of the organization.
Contributors – The owners and providers of the decentralized productive assets and activities. These are assets and activities owned and operated by contributors.
Contributors are people or legal entities committing assets, efforts, and skills to the project in exchange for a reward. They differ from key partners, as the contributors are integral to this ecosystem, such as node providers in a specific blockchain. Compared to general service vendors delivering to a broad range of customers.
The products & services that the contributors provide could be automated (registering transactions, executing code, connecting to nodes, etc.) or manually created (writing a song, drawing an NFT, creating intellectual property).
The community’s size and engagement are essential metrics of the ecosystem’s health.
- What assets are they bringing?
- What technology is running on the nodes?
- What kind of product or service do they deliver?
- Do they provide differentiated or undifferentiated services?
Network Technology – the kind of blockchain supporting the project.
Features of the network like:
- Consensus mechanisms
- Smart contracts
Token Economics – the details of the token dynamics in the system.
- Reward system – this is the most intricate part of the canvas as it should describe the token economics of the organization in detail. The distribution schedules, inflation mechanisms, rewards, and fees should support the consensus mechanism and the company’s overall strategy. A company can have one or many tokens with different properties. One could be transferable and volatile. The other could be fixed and non-transferable.
- Consensus mechanism – this is the core of a Web3 application. It does not only describe how the participants resolve disputes. It defines the optimization goal of the whole system. It guarantees that there will be enough service providers and that the “stronger” contributors will be rewarded more. The consensus mechanism could also set penalties for bad actors or underperformers.
- Inflation management and speculation – There is significant hype around the tokens in Web3 companies. The speculation with the company tokens is not only encouraged but calculated in the business plan. Most companies are putting monetary instruments in place to assure token appreciation. When analyzing a business model in Web3, we must be able to separate the speculative capital gains from the recurring revenues coming from paying customers.
- Initial offering – Airdrop / ICO
- Market performance – details about token appreciation, inflation, daily traded volumes, etc. The volumes traded by speculators versus traded by contributors and paying customers.
Governance and ownership – a truly decentralized company should have decentralized governance. How are the decisions made? What kind of capital management is in place? Who has voting rights? How is the dividend shared?
It is essential to know what the background of the founders is and who are the key investors.
In many projects, the ownership of a token gives shareholder privileges – voting rights, dividends, etc.
There are Web3 companies with complex registrations across different jurisdictions—for example, a non-profit foundation registered in one country and a for-profit organization in a second country.
In other cases, the investors are also contributors, rewarded for delivered value, while the speculators are only part of the capital gain/loss side.
Community Engagement – The community is the Kingmaker in Web3. Many projects are supported by people who genuinely believe in the project’s mission and long-term vision. But some communities are backing projects just for fun or because “who knows, it might grow tenfold in price.” This could lead to a significant valuation of projects without business foundations. An example is the DogeCoin and many other Meme coins with billion-dollar valuations.
Social and Legal concerns – the company’s social responsibility (including sustainable energy consumption, openness, and inclusivity). The applicable legal regulations and jurisdictions.
Authors: Stefan Petzov, Tina Werro, Marcel Gabi.