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5 Reasons to Build Web3 Startups

Despite the recent downturn, Web3’s potential is attracting entrepreneurs from all over the world. Analysts at PwC say blockchain technology has the potential to add $1.76 trillion to the global economy by 2030. There’s an opportunity for innovators to succeed by contributing to the decentralized future and building Web3 startups.

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Deep dive
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November 23, 2022
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Content Marketing Manager
Why should you build a Web3 startup?
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Web3 apps aren’t just trendy; they also have some clear advantages over traditional apps. These advantages show up in product development, marketing, user experience, and more. Read on to learn about why you should build a Web3 startup.

1. Access a First-Mover Advantage 

Web3 startups are still in their early-adopter phase. To give you a sense of just how young the space is, the phrase “Web3” only started trending in Google search results within the last year.

Blockchain’s disruption of the financial services industry in the past few years through decentralized finance (DeFi) is a great example of how Web3 apps could upend other industries. Analysts at Deloitte peg Web3 as the next phase in the evolution of digital interactions, and today we have barely begun to scratch the surface of what’s possible. 

Web3 startups could impact digital businesses in the same way that the internet disrupted the operations of brick-and-mortar businesses. These new companies will introduce transformative models of ownership to their users, protect user privacy, and fundamentally change how digital businesses behave and operate. Developers who get in early now with Web3 startups will get a first-mover advantage in their respective industries, helping them acquire users, raise funding, and establish marketshare before the competition comes in.

VCs are betting heavily on Web3, with about $90 billion worth of funding invested in about 16,000 Web3 startups, and 80 of those companies are now unicorns (startups valued at over $1 billion). Investor interest is clearly there, and it’s up to entrerpreneurs like you to build the Web3 apps that attract mainstream adoption.

Getting VC funding will become more competitive as the Web3 industry matures, but for now, there’s less competition for funding among Web3 startups simply because there are fewer of them (compared to Web2). Take advantage and be one of the first movers in your industry.

2. Web3 Apps Are More User-Oriented Than Traditional Apps

59% of respondents in 2022 Edelman’s Trust Barometer say their default tendency is to distrust until they see evidence that proves otherwise, and 63% say that business leaders are misleading people. In other words, users don’t have a lot of trust in businesses, and they often don’t have visibility into a business to feel otherwise.

Web3 startups build their decentralized apps (dApps) on decentralized networks—enabling them to put their users first and operate in a transparent environment to earn that trust. To start with, users of Web3 apps do not need to trust the business with their personal information in order to create an account; they can interact with Web3 apps pseudonymously using their wallet as their only credential.

Users also control their assets. Take DeFi, for example, which lets users self-custody their financial assets and trade peer-to-peer without any centralized intermediary. It’s their wallet, their assets, and apps do not require information or custodial access that could later compromise the user or their assets.

Importantly, users can also see a lot of the code that Web3 apps run on: Web3 embraces open-source culture. After all, a blockchain is a public database. Web3 apps earn greater trust from users because those users don’t have to place as much trust in the company. They can verify the open-source code or the blockchain history, if they choose to, which keeps Web3 startups honest.

In Web3, the power dynamics are shifting, and more power is given to the user, which in the long term may lead to more sustainable businesses and stronger user communities. We are already seeing the strength of user communities emerge in Web3 through DAOs (decentralized autonomous organizations), which have been organized to do everything from buying a copy of the US constitution to governing a major DeFi protocol, as well as NFTs (non-fungible tokens), which have enabled tight-knit communities, perhaps most notably CryptoPunks and Bored Ape Yacht Club.

It’s early days yet, but Web3 will be defined by its decentralization and its user-empowerment. Web3 startups can leverage these unique strengths to build entirely new business models.

3. You Can Market Through Innovative Models

Web3 apps also offer unique ways to reach your users and even to raise funding. For example, Sigle, an open-source writing platform for Web3 content creators, raised a round of funding through the sale of an NFT collection. This decision served 3 unique purposes for the startup:

  1. The NFTs raised money for the company.
  2. The NFTs served as a banner for the community to rally around.
  3. The NFTs provided utility for the app users.

Interestingly, Sigle enabled the holders of those NFTs to access premium features in their app at no cost (whereas non-holders can choose to pay for those features if they want them, or alternatively acquire one of their NFTs on a marketplace). This meant that the startup didn’t just raise capital from the public; they raised funding from their future users, strengthening the bonds of their community. Learn more about how Sigle built this functionality here.

This type of innovation is only possible in a Web3 environment, and blockchain technology is unlocking all kinds of possibilities, from innovative ways to raise funding to new forms of governance. In many Web3 startups, their decision-making models are crowdsourced, and users themselves can participate in what actions a startup takes or what features it builds, tightening the feedback loop and the startup’s product-market fit.

Other startups are innovating with the increased liquidity that Web3 can offer, ranging from Web3 gaming apps such as Axie Infinity, Alien Worlds, and ZED RUN enabling players to earn income by gaming to marketplaces enabling artists to earn recurring revenue streams. Web3 puts the user first, and entrepreneurs are exploring new business models to deliver value to them.

4. Make Your Customers Your Stakeholders

One of the hardest parts about launching a startup can be acquiring early users, particularly if your app needs network effects to succeed. In Web3, you can make this process easier by using token incentives to share ownership with users, giving them skin in the game and encouraging them to not only join but to contribute toward the success of your project. 

Many Web3 startups operate with a utility token, which is a way to transact for a specific service or perform an action within an ecosystem. For example, Filecoin is a peer-to-peer storage network that lets users rent out spare computer storage space, and the FIL token itself is the means by which users access the network and pay to use storage/get rewarded for loaning out storage.

Importantly, this token can be exchanged for other crypto assets (or cash) or held. If Filecoin, or any app using a token for that matter, takes off and becomes successful, those tokens can become worth more money as more people use the service the token represents. For early adopters, it can be a way to be rewarded for joining the network early. Because tokens can give users skin in the game, it can make them more loyal users and brand ambassadors for the project because their incentives are aligned with the startup itself: they want the project to succeed. This can create a more powerful sense of community and help with word-of-mouth marketing.

For example, Binance, the largest crypto exchange in the world, owes much of its success to the popularity of its native BNB token when it first launched. In the words of Yi He, Binance co-founder and chief customer service officer, “It's only through BNB that we've built such a strong community, and this is the secret of Binance's growth.”

5. Web3 Apps Benefit from Open Ecosystems

Web3 ecosystems are open source, and this openness enables Web3 startups to benefit from the wisdom of a large pool of developers. Blockchains themselves are open-source and open databases, and all apps build from the same foundation. This prevents walled gardens: ecosystem data is always available to the public and to new entrepreneurs looking to build businesses leveraging that data.

Importantly, there is no gatekeeper to app deployment either. There is no App Store reviewing your project to determine whether it is fit for the public; it is a permissionless environment. As soon as your code is ready, you can ship it—and there is no App Store taking 30% of your revenue either or risk of platforms restricting your data access. This openness aligns with the original ethos of the internet, with crowd-powered contributions leading to the development of infrastructures, such as HTTP and SMTP. 

Web3 apps thrive in open and collaborative environments where no single entity holds too much control over the network. And many of the startups themselves embrace that ethos and build open-source applications. For example, the source code for smart contracts on Stacks are all publicly available, making the ecosystem composable. Developers can take code from existing projects to build something new, which is a common theme in Web3: SushiSwap was built using Uniswap code, which was the first DEX on the Ethereum network. 

Web3 thrives in an open ecosystem where innovation can happen everywhere. There is no core service provider that can unilaterally make a decision that will impact your startup, and you can be inspired freely by the projects of others, and them by you.

Where Should You Build Your Web3 Startup?

In the 13 years since Bitcoin launched, blockchain has gone on to become a disruptive force in tech. Beyond Bitcoin, many new Web3 ecosystems, such as Stacks, Ethereum, Solana, and Cosmos, have emerged to extend that disruption across markets and industries all over the world.

These various Web3 ecosystems have their own strengths and weaknesses, which impact Web3 startups and apps in those ecosystems. Find a home for your Web3 startup in our free guide:

Download Hiro's Guide to Web3 Ecosystems
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