The Predominant Web3 Business Models And Their Key Metrics

In this article, we want to share some insights on the most common business models in the Web3 space and elaborate on what metrics one should keep a close eye on to assess their performance and evolution. - Authors: Elias Mendel, Jong-Chan Chung

We are not claiming that this guide covers the entirety of Web3 business models, as there are many niches and newly emerging use cases appearing regularly. Likewise, our map only displays an excerpt of Web3 businesses. We have also made certain summarizations and categorizations that you might not agree with for the sake of a clear structure and a comprehensive overview. 

Infrastructure 

Blockchain as a Service (BaaS) 

The first category is blockchains themselves. In their essence, they are businesses providing distributed databases selling blockspace to their customers, with the majority of them offering a wide scope of functions through the implementation of smart contract technology. A part of those BaaS-included solutions does not necessarily offer their own in-house blockchain infrastructure from scratch, but instead leverages existing blockchain infrastructure to achieve more scalability, or focuses on achieving interoperability between different blockchain ecosystems (cross-chain bridges).

Primary Metrics:

• Number of active developers: These build the backbone of the project, and are the ones advancing the blockchain ecosystem. Check GitHub or this dashboard for detailed insights.
• Monthly Active Users (MAU): This metric shows you the activity within an ecosystem, a truly crucial matter, as ultimately, it is the users who will decide which blockchains will prevail and which will subside. The metric is defined as the number of unique users transacting within the network in a month. A non-declining or even growing user base during bear markets is a particularly good sign. 
  
• For smart contract platforms catering to DeFi applications, a good metric is the TVL, which is the Total Value Locked, i.e. the aggregated value of all deposits made in smart contracts hosted on that particular blockchain. Beware of ways how this number can be tampered with, however.
• Network transactions: A good metric to gauge user sentiment and activity. Likewise, this number can be inflated during bull runs, so it’s advisable to look at longer-term moving averages.
• Number of nodes: These maintain the network’s infrastructure, decentralization, and security, and as such, the more nodes running the network the better. Check Ethereum’s nodes here.
• TPS: TPS, or transactions per second, is the metric defining a blockchain’s throughput, and as such, its capacity to host on-chain activity. Beware though that a low TPS does not necessarily have to be a bad thing. Referring to the blockchain trilemma, certain blockchains, such as Bitcoin, intentionally have a lower TPS number for the sake of higher decentralization and security.
• NVT Ratio:  NVT stands for Network Value to Transactions ratio, and it is calculated by dividing the market capitalization of a cryptocurrency by the daily transaction volume on its blockchain. The NVT ratio provides an estimate of how much value is being transacted on a cryptocurrency network relative to its overall market value. A higher NVT ratio suggests that the cryptocurrency is tendentially overvalued, while a lower NVT ratio indicates that the cryptocurrency may be undervalued.
• Economic network security: The monetary value of tokens deposited (PoS), or the network’s hashing power (PoW) -> How much would it cost to attain a 51% stake in the network?
  
  

Figure 1: See an overview by Messari of a blockchain’s (BNB chain) key network metrics.

• Even though we listed BaaS as a Web3 business model, it’s important to note that there’s usually not one entity owning a major stake in the network, and as such, it’s only a business in a broader sense. Yet, there might be parties involved that have a large say in determining the network’s future, such as the Ethereum Foundation and Vitalik Buterin, i.e. the core developer community of open blockchain networks. Generally, the more distributed the token ownership - essentially the blockchain’s equity - the better, as it represents the virtue of decentralization and censorship resistance. 

Figure 2: Note how Ethereum’s count of Unique Wallet Addresses (UWA), another metric to asses network activity, did not decline despite stark price drops in the bear markets of 2018 and 2022. 

Wallets

Cryptocurrency wallets are the foundation to navigate Web3. Firstly, there are non-custodial wallets, such as MetaMask or MEW where the users themselves store their keys. And secondly, there are custodial wallets, where an entity, usually a centralized exchange, holds the user’s private key, and hence, ultimately their assets. There’s also the distinction to be made between software and hardware wallets. Lastly, we can distinguish between cold wallets storing your keys offline, and hot wallets, programs storing your keys whilst being connected to a web server. Most software wallets make money by offering certain services, such as the purchase of cryptocurrencies with credit cards, or by directing user traffic onto exchanges that pay them a fee in return. Hardware wallets, on the other hand, primarily make money by selling their physical product, but increasingly offer staking opportunities and user interfaces to interact with the decentralized finance space. Find a great overview here.

Primary Metrics: 

• Number of downloads or purchases: Key to determine the all-time user base.
• Monthly active users (MAU): This shows the wallet’s “momentum”, as there’s a distinction to be made between downloading/purchasing and actually using a wallet. Beware that this number is linked to the overall Web3 sentiment and how active investors are with their assets. 
• Number of partnerships: This is also worth taking a closer look at, as more partnerships mean more income streams for wallet providers.

Takeaways: 

• Winner takes it all is a likely scenario.
• Hardware and software wallets require different metrics and have different income sources.
  
  

Enterprise Blockchain Solutions

Enterprise blockchain technology aims to provide means to a secure and effective way of conducting business by tackling challenges in the modern transactional business environment. In the current business environment, data is often kept separately by organizations due to a lack of trust, which leads to certain synergy and efficiency potentials not being capitalized on. Enterprise blockchain technology can facilitate secure data sharing and collaboration between different organizations, resulting in improved efficiency, reduced costs, transparency (e.g. in supply chains), and enhanced data security¹. If the users are known or KYC’d then it would allow for relaxing the security assumptions for higher scalability. Example: A consortial blockchain infrastructure that onboards state-regulated or public carbon credit allowances agencies that know and trust each other. We have included the IoT and supply chain niche here too.

Primary Metrics: 

• Booking Value: The total signed contract value, both recurring and one-time.
• Annual Contract Value (ACV): Total contract value/number of years.
• Number of industries used in (e.g. supply chain, fashion, public sector, etc.)

Takeaways: 

• Fewer customers, much larger deals ($100k+/year)
• Direct sales as main income source
• Often begin with paid pilots or LOIs
• Pipeline: Usually, an expert team will collaborate closely with the client to work on an initial demo version. Once worked out, the full-scale solution can be implemented.
• Lumpy growth: Measuring short-term growth rates doesn't make that much sense².
  
  

Oracles

Oracels are essential for any smart contract blockchain. They source, verify and transmit off-chain data (i.e. information stored off-chain) to smart contracts running on the blockchain. As such, without oracles, blockchains could only access data stored on-chain, dramatically constraining their application scope. We focus on decentralized oracle networks (DONs) comprising multiple participants in a peer-to-peer network that form consensus.

Primary Metrics: 

• Fees Generated: What compensation do oracle nodes receive for feeding smart contracts with data, generating verifiable randomness, or automating smart contracts? Usually, node operators are paid in the oracle blockchain’s native token.
• Number of nodes: Determines the degree of decentralization and the width of services offered within the nodes’ network.
• Number of APIs connected to: The larger this number, the more data is available.

Takeaways: 

• Charge based on the number of API requests made
• Grow as customers grow
• Product and pricing scale to support any smart contract on the blockchain, regardless of its creator.
  
  

Data & Development

When talking about business models pertaining to Web3 infrastructure, we refer to all those services sitting at the very backend of Web3, providing highly crucial services, such as Web3  indexing (APIs and RPC endpoints), nodes, SKDs, blockchain explorers, and more. These tools are necessary for developers to build Web3-based products and protocols, and for dApps to interact with the blockchain. 

Primary Metrics:

• User Retention: As most of these businesses rely on recurring revenue through subscription services, the user retention rate is crucial to monitor. 
• Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR)
• CAC: The Customer Acquisition Cost measures the cost of gaining a new customer. 
• Growth Rate: Both the total subscription $ volume and the total subscriber count. 
  
• Number of chains services are offered for
• Number of daily API requests 
• Number of nodes in service 
• Active developers using tool suite 
• Number of RPCs

Takeaways:

• Recurring, subscription-based revenue is the most valuable revenue, as it brings stable and plannable cashflows. 
• Most services are offered monthly through subscription services. 
• Usually high scalability, as new customers do hardly cause any additional costs once the core products have been built. 
• Customer growth driven by self-serve acquisition channels –> Scalability  
• Essentially, the platform that makes it easiest to onboard Web2 developers will prevail and fuel Web3 mainstream adoption
  

Web3 Storage

These businesses focus on storing data in a decentralized fashion (or on providing the necessary infrastructure to do so), posing Web3’s response to cloud computing and certain other Web2 services that require data storage and retrieval at a large scale. They mostly rely on a network of scattered nodes storing, encrypting, and, upon legitimate requests, providing the data. There are three major data storage solutions prevalent in the Web3 space: Network storage, P2P storage, and coordination platform. This article provides a great deep dive into the matter. Many Web3 projects will leverage the Web3 hosting infrastructure to build onto, e.g. for content hosting and NFT storage.

Primary Metrics: 

• Consensus mechanism and its “strength” (e.g. for PoW the hashing power, or the staked amount for PoS)
• Size of total data stored (TDS)
• Storage cost per data unit (e.g. 1 MB/GB)
• Storage duration
• Hardware costs for running a validator/mining node

Key Takeaways: 

• Few platforms are likely to dominate the market due to high upfront investments and network effects, just like in traditional data storage and cloud computing.
• Incentive mechanisms for nodes to store and secure data are key.
  
  

Financial Services

ReFi (Regenerative Finance) 

Regenerative Finance, a combination of regenerative economics and decentralized finance, is a niche movement within the Web3 space that aims at fighting environmental pollution and manipulated carbon offset certifications. Through the implementation of tokens and NFTs, ReFi businesses can create a transparent and tamperproof carbon trading system. 

Accordingly, the tokens become easier to track, accessible to a larger audience, and can create a much more liquid market than the currently prevailing ones. The VCM (Voluntary Carbon Market) is a particularly interesting application for ReFi. Some of the ReFi businesses can also be labeled as a marketplace, but we wanted to devote a separate section to this niche.

Primary Metrics: 

• Booking Value: The total signed contract value, both recurring and one-time.
• Annual Contract Value (ACV): Total contract value/number of years.
• Project Audits & Third Part Oversight: Are there independent audits confirming the project’s claims? If so, how many?
• Additionality: Only given if the GHG emission only occurred because of the project.
• Avoid overestimation: This happens when a project (intentionally) overestimates and inflates its emissions to sell more offsetting tokens.
• Permanence: Ensures the particular offset project’s longevity.
• Exclusivity: Ensures that a project’s offset claim is made only once, and not “double counted” by multiple parties³.

Takeaways: 

• Most projects have few customers and much larger deals
• Growth driven by direct sales
• Often begin with paid pilots or LOIs
• Usually long sales cycles, with many gatekeepers
• Pipeline: Usually, an expert team will work closely with the client to work out a tailored solution.
• Lumpy growth: measuring short-term growth rates doesn't make that much sense.
• ReFi businesses can be divided into service business (corporate clients) and marketplaces (token).
  
  

DeFi & Asset Management

Crypto Asset Management & DeFi is yet another business model in the Web3 realm. DeFi, short for decentralized finance, leverages blockchain technology and smart contracts to automate and disintermediate financial transactions. While the bespoke DEXs are part of DeFi too, we decided to focus this section on all other DeFi services, as well as Web3 asset management platforms. There used to be a range of centralized Web3 asset managers, but multiple of them filed for bankruptcy in the last quarters after having used far too much leverage and borrowing each other funds in a frivolous manner, which resulted in a major contagion spurred by Terra Luna’s collapse and culminating in FTX’s downfall last year. Within the DeFi realm, there are insurance, prediction markets, tokenization solutions, derivatives, yield aggregators, lending and borrowing, staking services, asset tokenization, and much more. The main revenue streams for most DeFi protocols are interest payments, fees per transaction, or liquidation fees. Find a brief overview of the DeFi landscape here.

Primary Metrics (some might apply more to specific DeFi niches than others):

• TVL: The total value locked in a protocol
• Number of active developers
• Number of audits conducted
• Number of monthly active users (MAU)
• Transaction volume (in absolute terms but also in tx/day, tx/week and tx/month)
• Transaction fees generated (often used to fund treasury expenses that serve the entire community)
• Longterm growth rate in above areas
• Token Vesting Schedule: This heavily influences price movement.
• Number of chains deployed to: This starkly impacts a DeFi protocols adoption and growth.
• Social media activity & community engagement (Discord, Reddit, Twitter, LinkedIn etc.)

Takeaways: 

• Keep an eye on the blockchain the protocol is built on or focusing on, as this heavily affects its user base in the mid- and long term.
• Mostly open-source, decentralized projects.
• Building a large community as early as possible is key.
• Incorporating an adequate token release/vesting schedule starkly affects tokenomics and as such, a project’s token, if existent.
• Figure out ways to generate revenue as early as possible (transaction fees, premiums paid, bid-ask spreads, etc.) 
  
  

Payment Services 

Payment services try to bridge the gap between our fiat currency system and cryptocurrency payments. They usually aspire to disrupt current payment services by offering a cheaper, faster, or more accessible solution, or enabling merchants to offer payments using crypto. Their realm spans remittance, B2C & B2B payments (payment gateways), e-commerce plugins, NFT fiat payments, and stablecoins. Accordingly, they also play an important role in financial inclusion and often enter partnerships with the aforementioned wallet providers. To clarify: Stablecoins could have been listed under DeFi as well, in particular those stablecoins that are indeed fully decentralized, such as MakerDao’s Dai. They are used heavily to have a base trade unit and park liquidity. 
Yet, we decided to include them in this section, as we want to stress their usability in transacting in fiat-denominated terms on-chain, which is a huge benefit when it comes to financial inclusion. 

Primary Metrics: 

• Number of customers
• Number of cryptocurrencies accepted
• Gross Transaction Value (GTV): Total payment volume transacted
• Net Revenue: Fees charged for transactions (often a %)
• User Retention: % of month 1 customers that make a purchase in month 2, etc.
• Number of countries accepting the solution
• Number of integration partners (e.g. how many wallet providers does a fiat on-ramp provider work with)
• CAC

Takeaways: 

• Usually, their business model relies on high volume with a low fee.
• Best transactional payments businesses have extremely consistent revenue from high repeat usage.
• Closest to the transaction, i.e. direct and fast payment (as opposed to affiliates, for example).
  
  

Staking as a Service (StaaS)

Except for the OG blockchain Bitcoin, ever since Ethereum underwent the merge, the bulk of major blockchains uses variations of Proof of Stake (PoS) to achieve consensus and secure their network. Since the decisive factor in getting a say in a PoS system is the number of tokens staked, i.e. deposited into a particular staking smart contract, staking pools have dramatically risen in popularity over the past years. Users that do not fulfill the prerequisites to become a validator themselves pool their tokens together, and collectively operate validator nodes, sharing the earned profits. Liquid staking - which can also be deemed as part of DeFi - has won massive popularity as well. It’s a feature that allows users to deposit their token, e.g. ETH, and receive a “ staking derivative”, such as stETH or RETH, so they can continue transacting on the blockchain. Once they wish to have their original token back they merely have to exchange the derivatives again. 

Primary Metrics: 

• Number of cryptocurrencies accepted
• Gross Deposit Value (GDV): Total volume deposited  
• Net Revenue: Fees charged for pooling services (usually paid to node operators and DAO members).
• User Retention: % of month 1 customers that keep their deposit in month 2, etc.

Takeaways: 

• Usually, their business model relies on high volume with a low fee
• Ideally, these types of businesses have extremely consistent revenue
• The larger the pool, the more staging rewards can be generated (careful, as this can collide with the virtue of decentralization) 
  
  

Entertainment 

GameFi & Metaverse 

GameFi is the intersection of gaming and finance, with the two merging in an environment driven by the use of blockchain, smart contracts, and NFTs⁴. GameFi is also at the forefront of the metaverse, attempting to create an interoperable, user-governed, and -owned gaming world.
And while the current GameFi landscape is still far away from reaching its full potential with regards to community governance, interoperability, and user ownership, niche business models evolving around the GameFi hub are increasingly emerging, e.g. asset creation and borrowing services. The metaverse is slightly different from GameFi in the sense that it is offering its users a virtual reality far beyond mere gaming. Metaverse projects aspire to be a hub for e-commerce and virtual events, work, and real estate. 

 Figure 3: Take a look at this comparison between the metaverse and GameFi, inspired by GamesPad.

Primary Metrics: 

• Daily Unique Visitors (DUV): These are your active community members.
• DUV growth rate: Measured weekly or monthly.
• Fees on in-game purchases (land, in-game playables, avatars) are major revenue stream.
• Value of digital assets within the game or metaverse.
• In-game liquidity/secondary market

Key Takeaways: 

• Revenue depends on the project’s current popularity and media coverage.
• Once established in the market, high market dominance can be achieved.
• Business model relies on high volume with low fees.
  
  

NFTs 

NFTs, short for non-fungible token, have received plenty of media coverage in 2021 & 2022, and have generated some mind-boggling sales volumes. Their digital scarcity and traceability open up a wide range of opportunities and use cases, from digital collectibles to digital identity and disruptions in areas such as music, supply chains, or fashion - you name it, the list is basically endless. For the sake of clarity, we will focus this section on NFTs in the context of digital art and collectibles. 
The newly released Bitcoin Ordinals protocol, which has caused much controversy due to its use case and transaction fees, has spurred a gain in attention towards the NFT sector. It essentially allows Satoshis (i.e. Bitcoin fractions) to be transformed into digital collectibles by inscribing images onto them which are stored off-chain.

Primary Metrics: 

• Number of daily/monthly sales
• Volume of daily/monthly sales
• Revenue comes from the initial sale of digital collectibles + royalties on subsequent sales
• Social Media activity & community engagement (Discord, Twitter, Reddit)

Key Takeaways: 

• Revenue depends on the project’s current popularity and media coverage
• Once established in the market, high market dominance can be achieved
  
  

Media

These Web3 businesses provide news and educational means to their audience and create industry-related content, such as articles, press releases, podcast episodes, and other educational resources.

Primary Metrics: 

• Monthly Active Users (MAU): This can be in the form of monthly listeners, readers, or users.
• Paid Users: Usually, these platforms offer premium services accessible to premium subscribers.
• Subscriber retention: How many premium subscribers continue paying to access the additional features?
• User Retention: % of active users (free) that keep using the platform.
• Sponsorships: Sponsors are often willing to pay hefty sums in order to be featured on a well-known Web3 news outlet or educational platform.
• CAC: Cost to acquire a new customer.
• CPM (Cost Per Thousand) or CPC (Cost Per Click)
• Community size (followers, subscribers, listeners, etc.)

Key Takeaways: 

• Advertisements, sponsorships, and subscriptions are the main revenue streams
• Those with the most exclusive and appealing content dominate the market 
  
  

Auditing / Web3 Security

Auditing businesses focus on auditing projects’ smart contracts and ensuring liquidity reserves are in place for centralized exchanges (Proof of Reserves). Auditors are crucial for ensuring that Web3’s infrastructure operates seamlessly, and reducing smart contract exploits and hacks as much as possible.

Primary Metrics: 

• Number of developers
• Number of projects audited
• Growth rate: Measured monthly or weekly
• CAC
• Number of projects audited that got compromised/exploited at a later point.

Key Takeaways: 

• Primarily non-recurring revenue, as customers use their services whenever they launch new code.
• Growth mostly driven by direct sales.
• Limited scalability due to service business.
  
  

Marketplace 

Marketplaces can emerge for various purposes, although the most common form in the Web3 universe are cryptocurrency and digital collectible exchanges. Buyers and sellers meet on the marketplace to exchange their token. It is important to make a distinction between centralized and decentralized marketplaces/exchanges. 

Primary Metrics: 

• Trade Volume: The trade volume occurring in the marketplace. However, you want to use a moving average to account for short-term bull runs (and bear markets too) inflating (or deflating) the volume.
• Net Revenue: Fees charged for transactions (often a % take rate).
• Growth Rate: Both in terms of users, fees, and trade volume.
• User Retention: The percentage of users that keep using the marketplace’s services.
• For DEXs: Take a look at the developer activity, legitimate smart contract audits, and, as alluded to in the BaaS section, TVL metrics.
• For CEXs: Check if the exchange publishes a transparent PoR (Proof of Reserves) report, proving that user funds are fully backed by the exchange’s reserves.
• Mechanisms in place to reduce the severity and threat of impermanent loss and slippage.
• Number of blockchain deployments

Takeaways: 

• Gaining traction can be hard initially, relating to the chicken & egg problem.
• Once successful, network effects lead to strong market penetration and dominance.
  
  

Blockchain Analytics 

Blockchain Analytics companies offer their users insights on a wide range of blockchain and DeFi (Decentralized Finance) metrics. They usually have different membership levels that can be subscribed to on a monthly basis, and as such, their business model strongly resembles traditional SaaS companies offering subscription services. However, there are also open-source analytics providers that do not charge their users any fees. Beware that there are a lot of different niches within this ecosystem. 

Primary Metrics: 

• User Retention: As most of these businesses rely on recurring revenue through subscription services, the user retention rate is crucial to monitor.
• Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR)
• CAC: The Customer Acquisition Cost measures the cost of gaining a new customer.
• Growth Rate: Both in terms of the total subscription dollar volume and the total subscriber count. 

Takeaways: 

• Recurring, subscription-based revenue is the most valuable revenue, as it brings stable and plannable cashflows.
• Most services are offered monthly through subscription services. 
  Usually, high scalability, as new customers do hardly cause any additional costs once the core products have been built.
• Customer growth is driven by self-serve acquisition channels -> Scalability  
• Focus on a small, but unexplored niche can be lucrative. 
  
  

DAOs 

DAOs, short for decentralized autonomous organizations, are a new way of setting up and governing communities virtually, and in a decentralized, less hierarchical fashion. They run on the blockchain and are enabled through the use of smart contracts. The token holders are the DAO members and collectively they engage in the decision-making process. DAOs rose to prominence with the increased adoption of Ethereum, and have since become an integral part of the Web3 landscape and its de facto organizational structure. This guide provides more in-depth insights. Many of the DEXs and DeFi Protocols, like Uniswap, Curve Finance, Compound, or Aave, are structured as DAOs. 

Figure 4: A breakdown of the most prevalent DAO types by Alchemy. 

Primary Metrics: 

• DAO Community & User Retention: How many members does the DAO have, and what is its monthly net growth rate (new members - members leaving)?
• Proposal Approval Rate: There’s a sweet spot when it comes to this metric. An extremely high approval rate suggests there’s too much group thinking and a potential lack of critical thinking and objections. An extremely low rate suggests there’s too little consensus among the members making a sustainable, long-term decision-making process difficult.
• MAC: The Member Acquisition Cost measures the cost of gaining a new member (essentially, marketing costs/new members).  
• Voting participation: The higher, the better.
• Budget Use (Actual vs. Planned): What are the DAO treasury funds used for, and how does the actual spending compare to the planned one⁵?
• Token distribution: You want the token distribution to be as equal as possible so that the decision-making process is as democratic as possible (The token’s Gini distribution should be as low as possible; also, it’s worth checking whether quadratic voting is being used).

Takeaways: 

• The three main pillars for assessing a DAO’s health are its governance model, financial sustainability and feasibility, and the community itself.
• Always critically question whether a DAO and the decentralized structure that comes with it actually makes sense or is more of a marketing stunt. 
  
  

Miscellaneous

Lastly, beware that you will find many projects for which we did not label a category, either because it would have exceeded the scope of this article or because they are within a niche that is yet to gain further traction. 

This report has been inspired by YC’s business model and pricing guide for primarily non-Web3 companies, and multiple of its contents have been applied and used in this guide. 

Download the Web3 Business Model slideshow here.

References

1. https://www2.deloitte.com/
2. https://www.ycombinator.com/
3. https://www.consequence.world/blog
4. https://www.weforum.org/
5. https://mirror.xyz/

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