Original author: Pengyu, Co-founder of Particle Network

MetaMask is the most well-known wallet product in the industry, and its influence has transcended the wallet field, giving people an almost unshakable impression. The core reason is to take advantage of the first-mover advantage among the developer community and build a growth flywheel together with the dApp ecosystem. This article will analyze how the MetaMask growth flywheel is up and running, and why it may be failing.

A brief review of the development history of MetaMask

Let us briefly review the development history of MetaMask:

MetaMask was co-founded by Kumavis (also known as Aaron Davis) and several other core members. Its purpose is to simplify user interaction with dApps through browser extensions. Prior to 2016, interacting with Ethereum-based dApps typically required running a full Ethereum node, which was quite complex for many users.

Contrary to what you may think intuitively, MetaMask is positioned more as a developer tool in the initial stage, and its purpose is to provide developers with a friendly and easy-to-use user access interface.

Figure 1-MetaMask’s growth flywheel

From the development history, we can summarize the initial state and operating state of MetaMasks growth flywheel.

During the rapid rise of the DeFi and NFT fields, thanks to MetaMasks asset and user scale advantages, more and more dApps choose MetaMask as the preferred solution to connect on-chain businesses, thus further enhancing MetaMasks asset scale and user scale. .

Summarizing the development history of MetaMask, we can clearly see the initial, start-up and operation stages of its growth flywheel:

The initial stage of Flywheel: focusing on developer-friendly features, becoming the default user access tool for early dApps.

The start-up phase of the flywheel: taking the lead in users and asset scale.

The operating stage of the flywheel: the wealth effect in the industry - incremental users enter on-chain products (such products are mainly DeFi products, and mainly interact through the web page) - use MetaMask by default to connect - increase MetaMask users and Asset scale - from a single user access tool to a complete user ecosystem - thus attracting more developers to use MetaMask.

Why does it fail?

I think MetaMasks growth flywheel is failing, mainly for several reasons:

1. It does not become an “entrance”, making the growth flywheel more stable.

In the entire traffic path, MetaMask is not the core driving force for incremental user entry, but is just one of the places where new users enter Web3 driven by the wealth effect. In terms of traffic interaction, MetaMask is a one-way absorption without distribution and feedback. Another characteristic is that the proportion of users who use MetaMask as a starting point for active needs other than transfers is very small.

I think the entrance should be the starting point for active demand collection and distribution, not just a place for receiving traffic. For example, Google is an entry point, but Lu.ma, the campaign management platform often used by Web3 people, is not an entry point. In fact, MetaMask hopes that Snaps can take on the tasks from traffic acceptance to traffic distribution.

2. The core business scenarios on the chain are migrating: non-DeFi pan-user application layer projects are rapidly rising

The migration of core business scenarios will change the underlying driving force for incremental users in the industry. In the past, the underlying driving force for almost all new on-chain users came from the wealth effect of the top assets Bitcoin and Ethereum. However, with the rise of application projects, this driving force will transform into the dual drive of the wealth effect of head assets and Web3 native content. Therefore, the entry path for incremental users has changed significantly.

In the business scenario of the pan-user application layer project, the characteristics of user-chain interaction are: cross-platform, low value, and high frequency, which is different from the web-side interaction of Defi products, which is high value and medium to low frequency. The standard configuration of the pan-user application layer project will be mobile first and adopt a cross-platform product matrix.

On the mobile side, using MetaMask as a tool for users to access business scenarios will bring about a clear sense of experience segmentation. Specifically reflected in the product data, the registration conversion rate of new users is very low, and the completion rate of calling MetaMask for signing in mobile business scenarios is also very low. In this case, the damage to developers’ end-user experience will be significantly amplified, and MetaMask’s asset scale and user scale advantages can no longer make up for it.

3. Wandering in the realm of account abstraction

The business scenarios of some application layer projects use the ability of account abstraction to enter a more complex intelligent interaction stage, but MetaMask does not reinforce each other with the business scenarios of application layer projects in these scenarios, and only plays the role of a Signer.

The essence of account abstraction is to generalize account types, and the ultimate goal is to eliminate EOA accounts. However, MetaMask, as the leader of the EOA account system, has certain conflicts with the essential goal of account abstraction, resulting in its business layout in the field of account abstraction being not radical enough.

4. Misalignment between iteration ideas and product essence: As a product on the Web3 chain with the largest number of C-side users, the product idea is oriented towards giving priority to developers.

The overall idea of ​​MetaMask is to put developers first. This was a good strategy in the early days of the industry, because basically all users are developers, and developers are also all users.

There was no problem during the DeFi boom, but with the rapid rise of pan-user application layer projects, the encryption industry is transforming from a cryptopunk-friendly industry to a mass consumer industry, and the developer-first approach will be out of touch with end users.

Figure 2 - Migration of core business scenarios on the chain

Based on the two core reasons for the failure of the growth flywheel, what changes may occur to the entry pattern?

1. MetaMask has not become an entrance for the time being, and has lost the flywheel effect between it and dApp on the mobile terminal to mutually enhance asset scale and user scale.

Does this mean there will be more opportunities for retail wallets?

This will bring competition back to one between products, but does not make it any easier for other retail wallets to become on-ramps.

On the mobile side, it will reduce the pressure on other retail wallets. Different from the web era, other retail wallets no longer compete with the ecosystem built by MetaMask, Defi products and web-first dApps, but more like competing with an independent wallet product called MetaMask that has a certain reputation on the mobile side. Retail wallets have transformed from competition between independent products and ecosystems in the web era to competition between independent products and independent products in the mobile era.

However, this does not mean that other retail wallets have increased their chances of becoming an “entrance”. As we have analyzed before, retail wallet products need to handle both traffic and active distribution needs to become an entrance. On mobile, this challenge is not lessened for other retail wallets. At the same time, although MetaMask does not have a unique growth strategy on the mobile side, this just brings everyone back to the same competitive dimension, and MetaMask still has a clear first-mover advantage.

Even on this basis, more opportunities only belong to some retail wallets, and they may have the following characteristics:

• A mobile-first retail wallet that has unique insights into the native needs of end users in mobile scenarios and is able to meet them.

• A mobile retail wallet that operates with a positive economic model throughout the user life cycle. As an independent wallet product itself, a closed loop of commercialization can be achieved within the product. For example, if the wallet is combined with on-chain contract transactions, it is possible to achieve a closed loop of commercialization within a certain user scale. It can make the entire ecosystem have a positive improvement in monetization capabilities. This type of ecosystem is currently focused on exchange products that can generate high LTV through strong operations, including leading decentralized exchanges and centralized exchanges. For example: Uniswap’s mobile wallet, OKX’s OKX Wallet, etc.

• Breaking out of the UI perspective of the wallet and getting involved in the underlying optimization opportunities of each on-chain transaction, this type of product may not currently be classified in the wallet field, such as companies in the fields of Mempool optimization, MEV or authorization management.

2. The migration of core business scenarios on the chain is a more important reason for the failure of MetaMask’s growth flywheel.

Next, we will discuss how this factor will bring"Entrance"What kind of changes in the pattern.

Migration of core business scenarios on the chain"Entrance"The most lasting impact of the pattern is not just the failure of MetaMasks growth flywheel, but more importantly, the main driving force for new users in the drive chain has changed.

Before the rise of application layer projects, the main driving force for new users on the chain was the wealth effect of top assets. However, with the rise of application projects, this driving force has transformed into a dual driver of the wealth effect of head assets and Web3 native content.

Therefore, to understand more clearly"Entrance"With the possible changes in the landscape, we should pay more attention to how the pan-user application layer project will handle the interaction between new users and the chain. Including: public key generation, private key management, initiating signature, completing signature, and feedback after signing, etc.

Pan-user application layer projects have three options for handling new user interactions with links:

1. Access retail wallets with high market shares such as MetaMask / Coinbase Wallet.

2. Build your own wallet.

3. Connect to WaaS (Wallet as a Service).

There are four specific plans for self-built wallets:

1. Built-in wallet for self-built custody applications.

2. Self-built mnemonic part of speech, non-hosted application built-in wallet.

3. Self-built social login class and built-in wallet for non-managed applications.

4. Build your own independent retail wallet.

Based on the two dimensions of user experience (registration conversion rate of new users, efficiency of completing signatures in dApp) and asset responsibility, combined with the business interaction characteristics of pan-user application layer projects: pan-user, cross-platform, low value, high frequency, it can be carried out The following comparison chart:

The first option: Connect to a retail wallet with a high market share such as MetaMask / Coinbase Wallet.

Driven by both the wealth effect and Web3 native content, this solution is not feasible. Imagine that new users are attracted by the content and gameplay and download the mobile client of a Web3 game, and then the first thing they do is to ask them to go to the app store to download a second app (Coinbase Wallet or MetaMask mobile).

The second option: build your own wallet.

Building your own independent retail wallet is a relatively poor choice, because compared with accessing retail wallets with high market shares (such as MetaMask / Coinbase Wallet), it neither solves the problem of fragmentation in experience, but also increases user assets. Responsibility.

The advantage of building a self-built mnemonic wallet is that one less mobile application needs to be downloaded, but the problem of low new user registration conversion rate caused by the mnemonic itself has not been solved. Generally speaking, for general users (who do not have much experience in using Web3 products and services), the mnemonic link (understanding and memory) will cause more than 60% of users to lose.

Built-in wallets for self-hosted applications are a relatively feasible short-term solution that can solve user experience problems. However, the disadvantage is that the on-chain behavior of independent users cannot be tracked. In addition, as the business grows, the asset responsibilities of application layer projects continue to increase.

Building a self-built non-managed application wallet that supports social login is a relatively optimal solution, but for most project parties, this solution is not cost-effective considering the cost of self-construction and operation and maintenance.

The third option: access WaaS (Wallet as a Service).

The essential services provided by wallet-as-a-service products include two aspects: First, it provides a social login solution for the dApps it serves to greatly improve the registration conversion rate of new users; second, it generates a built-in full-function in the corresponding dApp. The wallet allows business-related on-chain signatures to be completed within the dApp without having to exit.

There are essential differences from the SDK of retail wallets: first, the entry process must be non-mnemonic, otherwise it will conflict with the need to solve new user registration conversions through social login; secondly, there is no independent wallet product as a necessary condition for signature to occur. In addition, wallet-as-a-service products are also different from retail wallets in business models and product iteration paths.

Figure 3-Wallet as a Service Product (Enter-In-App Signature-Full Operations on the Chain)

This approach can solve asset liability and user experience issues, but the risk is that it will rely on the operation and maintenance capabilities of wallet-as-a-service companies to a certain extent. However, I think the core risk is not in the business itself, but in making the right choices among partners.

Considering cost and efficiency, in the industry landscape with the rise of pan-user application layer projects, the standard configuration for handling the interaction between new users and the chain will be WaaS (Wallet as a Service). Therefore, after the migration of core scenarios, a large proportion of new users can directly interact on the chain through application layer projects combined with WaaS, and will be diverted to other application layer projects or independent retail wallets after completing a large number of business scenarios.

Based on this idea, we can outline the possible development trends of the entry pattern.

Figure 4: Traffic path under dual driving forces

who is new"Entrance"？

Under this development trend, has the pan-user application layer project become a new entrance?

Let’s go back to the definition of the entrance: the entrance is the starting point for active demand collection and distribution, not just the place where traffic is received.

Under this trend, the pan-user application layer project has actually replaced MetaMasks role in carrying traffic, and has an advantage over MetaMask in that it is also one of the underlying driving forces for incremental users to enter the industry.

However, even a single application layer project that has the ability to drive incremental users into the industry will not directly become the entrance because there are still two problems that need to be solved:

1. Head effect;

2. Redistribution capability.

In the traffic path diagram under this dual driving force, it can be seen that the head effect determines the scale of acceptance of pan-user application layer projects, while the redistribution capability determines whether a benign two-way relationship with traffic can be formed based on the acceptance location. interactive.

The judgment of the head effect is a matter that seems to have a path but is actually highly uncertain. There is only one type of product that is widely recognized: Web2 super applications that continue to invest in Web3 business and have clear goals.For example Telegram. Will Web3s native leading general-application products with the ability to drive incremental users occur in the re-evolution of centralized exchanges, or in the Web3 social communication protocol or game platform?

The ability to redistribute is one of the essential characteristics of portal.However, in the Web3 industry, I think the meaning of redistribution capability is broader, not just the distribution of traffic, but also the distribution of capabilities and the distribution of consensus. The distribution of traffic is very intuitive. It refers to actively guiding the attention of end users to upstream and downstream products. The distribution of capabilities includes on-chain asset operation capabilities and user community operation capabilities. The distribution of narrative and consensus is essentially distribution to top users.

The head effect and redistribution ability determine whether a sustainable entry can be formed.

In addition, we cannot ignore two roles:

1. Centralized exchange:The leading centralized exchanges will continue to participate in the process of reallocating traffic to on-chain businesses. Mobile retail wallets, WaaS wallet-as-a-service and on-chain contract trading businesses will become standard configurations for leading exchanges.

2. A new product that only belongs to Web3：Unlike Web2s data closure and user rights restrictions, Web3s transactions and authorization are completely controlled by end users. When application layer projects arise, end-user authorization and signature may require a platform for unified management, which involves authorization and signature for different business scenarios. End users may have new issues in terms of on-chain assets, authorization, and transaction status management."Entrance"Chance.

Overall, MetaMasks growth flywheel may be failing. The core reason is that the rise of pan-user application layer projects has caused a migration of core business scenarios on the chain, from web page interaction to mobile-first cross-platform interaction. The Web3 industry is transforming from a cypherpunk-friendly financial industry to a mass-market-friendly consumer industry. In this process, pan-user application layer projects with headlining effects and redistribution capabilities have become the core driving force. And the Web3 we envision"Entrance"It is most likely not produced through planning, but rather a reward for the character who contributes the most to the process.