Crypto Chats for Crypto Chads?

In ancient Greece, the area around Sparta was called Laconia. Spartans were not chatty fellows—they did not waste time convincing their opponents; they won arguments by breaking spears on the battlefield. This gave meaning to the word laconic, which describes a concise, direct, yet almost vague type of communication.

Spartan King Leonidas takes no BS

Laconic is how I’d describe my web3 messaging experiences today. I use most of the chat apps for testing purposes only, and the conversations are brief. My social graph is not onboarded there, so there are very few people I can reach. I don’t return to these chats, because they don’t have a unique value proposition to me as a user.

Just like “Twitter on blockchain”, “OnlyFans on blockchain”, or [insert your favorite consumer-facing app] will not work on Blockchain, trying to brute force web3 chats into user’s hands is a fool’s errand. X on blockchain has to bring a unique user experience, and, ideally, it has to bring increasing marginal utility, for it’s the only reason for people to switch at scale. Every category-defining business is one of its own, and not an “X on Y”.

Based on the inbounds to our investment pipeline (and Mudit’s tweet), we think founders came to believe that web3 messaging is a low-hanging fruit in terms of ideation. But it’s not a low-hanging fruit in terms of delivery and product-market fit.

Dozens of teams have attempted to build crypto messaging, and got nowhere. Status, with over $100 million raised via ICO in 2017, wanted to build a super app encompassing a messaging service, a browser, and a crypto wallet but never launched a product that would be better than the standalone alternatives in any of the three verticals. Whisper, a P2P protocol launched in 2016 by Ethereum Foundation for encrypted communication between network nodes, was shut down due to network overload (every message was sent to all nodes in the network; all nodes attempted to decrypt the message to see if they were the intended recipient).

Will crypto chats go beyond serving only crypto chads? We try to answer this question in the following sections by looking at chat functionality through prisms of Utility and Status, and what should be the relation between the crypto chat interface and its users.

Messaging is a competitive business

One of the takeaways from Eugene Wei’s extensive Status as a Service (StaaS) is that social networks compete on two axes—utility and social capital they provide to participants. Because utility features are easy to copy, most social networks allow users to earn social capital via proof of “work”—writing a controversial tweet, uploading a picture from an exotic holiday on Instagram, or publishing a long-form read on Substack.

Source: Status as a Service (StaaS) by Eugene Wei

Messaging is one of the several forms a social platform can take. However, given the increasing amount of hours spent online, chat has become just one of the many features offered by more immersive products with content feeds. Messaging, on its own merit, has always been a commodity.

Source: Status as a Service (StaaS) by Eugene Wei

As Eugene puts it in his aforementioned article:

“Most messaging apps fall into this category. They help me to reach people I already know, but they don't introduce me to too many new people, and they aren't really status games with likes and follows. [...]

This bottom right quadrant is home to some businesses with over a billion users, but in minimizing social capital and competing purely on utility-derived network effects, this tends to be a brutally competitive battleground [...]”

Whatsapp became successful because it provided utility where others didn’t. Telco carriers charged egregious fees for International texting and calls. By contrast, Whatsapp only required an internet connection and was low on data consumption. It was also one of the first apps to offer synchronous communication—instant messaging and group chats. The sign-up required only a phone number, which everyone already had, so there were no login credentials to manage.

Signal offered feature-parity with other messaging platforms but with superior security guarantees. Signal had message encryption as early as 2010, whereas Whatsapp adopted it only in 2016 by using Signal’s open-sourced encryption technology.

Signal has by far the most reliable security properties—including end-to-end encryption, new encryption keys for every message, and encryption of metadata—that’s why Signal became the default choice for journalists, whistleblowers, activists, military, criminals, and other privacy enthusiasts.

Telegram is not end-to-end encrypted by default, but it’s still available should you want to enable it. This security trade-off allowed Telegram chats to be easily synced across multiple devices (mobile, desktop) and operating systems because chat history is stored in the company’s cloud.

Telegram’s support of large groups, channels, and automated bots makes the platform much more social, programmable, and immersive, more closely resembling Discord than other chat apps. The deepening integration with crypto is mostly led by the community and independent developers. There is a long history with TON blockchain and how Telegram now tries to embrace it; the @wallet bot can give users a wallet and allows them to purchase and send crypto, while Unibot lets people trade on Uniswap from the Telegram chat interface. Probably no one would call Telegram a crypto chat application, but it’s silently (and logically) becoming one.

Unlike Whatsapp and Signal, Telegram allows users to earn social capital. For example, Yevgeny Prigozhin, founder of Russia’s Wagner mercenary unit, allows his 1.3 million followers to stay up to date with his misadventures in Ukraine and Russia.

Telegram channels are a mix of Gmail (utility: email distribution list) and Facebook (social: feed and emoji reactions)

It’s clear why the crypto crowd flocked to Telegram—it’s easy to follow the news, alerts, integrate bots, communicate in large groups, and share files. Crypto is social, reflexive, and prone to groupthink—moving it to Signal or Whatsapp would be akin to lying users to the Bed of Procrustes.

In Greek mythology, Procrustes was a rogue smith and bandit who attacked people by stretching them or cutting off their legs, so as to force them to fit the size of an iron bed

The most commercially successful messaging products exist as part of social capital-oriented platforms, and messaging is not explicitly monetized there. Facebook, Snapchat, Instagram, and many others have done it. The underlying utility of messaging is hard to monetize on a standalone basis—just look at Whatsapp and their 1bn users.

Short-form video is the absolute winner for consumers’ taste, and messaging is naturally built around it. The reality is that consumer apps–the ones we moan about in crypto these days–are in a sorry state unless their name is TikTok.

Unique value proposition of crypto messaging

Founders in crypto should not think how to provide another commoditized product which messaging fundamentally is, but instead ask some of the following questions:

1. How to move along on the utility axis, i.e., what is the crypto-native utility not provided by web2 equivalents? Can this become the wedge to attract and onboard normies into crypto?
2. What is the status in crypto, and how can messaging amplify it?
3. Do crypto chats even have a unique value proposition vis-à-vis web2 counterparts? If they do, should they exist as standalone products, or as part of successful applications that leverage status?

Most crypto chats position their value proposition around privacy, ownership, and censorship resistance. But the important properties around privacy and censorship are already offered by Signal, whereas “ownership” of messages is not relevant in a purely utilitarian context of chat—it’s impossible to earn social capital there.

Clunky crypto chats can exist as a niche thing for enthusiasts. But to seriously compete against existing messaging solutions, they will have to be normie-friendly and offer something useful in order to capture much more social graph than they presently do.

Chats becoming more useful

Intuitively, one would think that crypto chats would be adopted by crypto-native people, and yet, it hasn’t happened. That’s most likely because chats don’t leverage what’s relevant—the on-chain data. Founders, aspiring whales, NFT collectors, airdrop hunters—they all live and breathe it. Overlaying on-chain data with the feature of messaging adds another dimension to it, making data much more valuable through social interaction.

For example, one of the common problems for early-stage crypto founders is reaching their potential users or, more specifically, matching the on-chain wallets with off-chain identities (Twitter, Telegram, Discord). They see ideal DeFi or NFT degens using competitors’ products, but there is no way to communicate the value proposition to them. A common way is to scour competitor’s discord and pick off potential users one by one. ENS domain names are helpful too, but limited.

An easier, more intuitive, and far more effective method would be to message wallet addresses directly. You can already do it with Push Protocol.

Push Chat allows people to message any Ethereum address (and other addresses in the future)

Blockchain is a graph, potentially not only a financial but also a social one; if so, why would messaging not be native to it? Why text someone on Whatsapp, if you both spend time and interact on Twitter?

Direct on-chain messaging is another attempt to solve the same problem as Push does—reaching the people whose web2 profile you don’t know. We’ve seen these messages sent in the aftermath of many high-profile hacks, as founders communicate with hackers to recover funds in exchange for bounties.

The only reason on-chain messaging like this work is because there are many eyeballs following it

But what causes this need for messaging utility? It’s the analytical pursuits that crypto people have in regard to on-chain data—finding other successful users, spotting emerging trends, or suspicious on-chain activity. This segment of the users would use crypto chats purely because of the incremental utility they provide.

That being said, most people will never have analytical pursuits that would require new messaging platforms—it has to be something else (other forms of intention), or it has to be bundled with something else (that provides status).

The utility proposition for normies could be smart messages. Almost any crypto use case, as long as it has a social element, could be executed in chat through a link. This feature has been introduced by Dialect.

Dialect users can easily execute transactions from the chat interface

Dialect chat is modular, similar to how DeFi is—application developers can write their own custom smart messages, and get distribution of their application through Dialect chat users as long as they find these smart messages useful. This is the crypto-native utility wedge for regular people, but the success of it rests largely on external developers who must create and provide use cases enabled by crypto and accessible from a chat.

Dialect is a standalone application, so its users still need to connect or create a wallet when setting up an account. The wallet set-up process is already greatly simplified, but perhaps it could be pushed even further by rolling Dialect into other points of user capture—browser, content discovery platform, Solana phone, or a wallet.

Smart messages enable experiences unique to web3 and could also remove friction for users to perform actions they regularly do outside of chat. Dialect could be used to quickly spin up prediction markets and binary options between friends, with smart message acting as an escrow. This allows faster velocity of financial capital and could be a wedge for DeFi as a whole to reach users who otherwise wouldn’t bother using financial applications. In other words, chat enables speculation, which has had a proven product-market fit over the arc of human existence.

Smart messages could also be part of our Commerce In The Fluid Web thesis, even though critical pieces are still missing. Chat (and broader social platforms) is part of commerce—we seek external opinions and/or try to influence others.

How Dialect’s smart messages could look like in the “fluid web”

The bottom line is that people will use chat products that best accommodate the utility they seek. The blind messaging of on-chain addresses is not something most people would do (very few of us regularly send cold emails), while broader and more appealing utilities are not yet available. When they are, they could become a wedge for founders in DeFi, commerce, or gaming to reach more users than they otherwise would.

Chats amplifying status

For better or worse, status in crypto is most often associated with tokens held on-chain. “OG” status was earned by buying BTC or ETH very early and holding on to it against all odds. Having engagement on web3 social platforms like Lens or Farcaster does not yet equate to having status in crypto.

Another emerging form of crypto status is on-chain identifiers, which we expect to become richer over time. On-chain identifiers are a recurring theme in our writing. We define them as fungible and non-fungible tokens held by the user and a history of on-chain actions that help define the user’s profile (financial and social graph).

A great example where verifiable crypto status meets messaging today is Debank. It’s an aggregator of assets held on multiple blockchains and applications, therefore people come back to it often to track their balances. It also has its own social ranking of wallets that takes into consideration on-chain net worth, on-chain net worth of all followers of a given account, and follower count.

This status on display naturally nudges one to use it for messaging. DeBank Hi app allows users to message any wallet address on DeBank after paying a fee to the receiver to prevent spam. Because people check the app frequently to track their assets, it becomes a perfect medium to display messages. Debank has gone from aggregator (utility) to social ranking (status), and then incorporated messaging (utility). There is a positive reinforcement loop in each of these steps.

Another example of how chat could be used to amplify crypto status is displaying on-chain identifiers in chat. Because there is no way to accrue social capital in a chat between two people that could be verified outside of it, messaging apps should look to import already existing and verifiable social capital. Instead of staring at a blank page when opening up Push Chat, users could see pointers highlighting user’s on-chain identifiers.

Cold messaging just got easier, and Linkedin can only dream of verifiable identifiers like these

Display of relevant identifiers could be automated by the wallet’s owner, and they don’t even need to highlight the most prominent ones all the time—it should be context-dependent. For people who know each other, the most recent identifiers might be more interesting. I don’t want to chat about what you did 5 years ago, but I might want to ask about your most recent NFT purchases or social groups you’ve joined.

Surfacing messages to the user

The problem with crypto chats today is that message discovery (display) is not intuitive. We are accustomed to thinking of Metamask as the entry point to everything crypto, but it has nothing to do with consumer messaging. So where should the messages be surfaced?

Messaging applications that provide incremental utility to users—like Dialect—could exist as standalone products, but, due to the open-source nature of the industry, the default expectation should be that every utility feature will be copied by competition sooner or later. Dialect’s focus on collectible stickers as NFTs indicates that the product would eventually encompass a content discovery and entertainment platform. “Come for the tool, stay for the network” applies where the tool is unique and suited for single-player use—but this does not describe messaging. Dialect inverts that relationship by saying “Come for the entertainment, stay for the tool”.

If the utility provided by the messaging app is narrow—relevant only for crypto natives—then it has to think what social use case would be the best fit for these messages. DeBank has done this but in reverse order (social use case first, chat second). In this case, message discovery is a byproduct of interacting with a useful application without chat functionality. These vertical crypto chats for specific use cases could be applied to NFT discovery platforms, gaming and the new ERC-6551 token standard, OTC desks, on-chain coordination of real-world activities, and, of course, web3 social platforms.

Both examples described above—standalone chat applications and vertical chat tailored for a specific use case—still require users to open up a particular frontend. An alternative approach is being developed by XMTP, an SDK for application developers to integrate a portable chat for their users and make it accessible from any compatible frontend.

Lens, and its ecosystem of apps, have adopted the XMTP standard. It allows users to access their chats from whichever Lens application they use. As more developers integrate it, chat becomes more widely available on different applications, without requiring incremental effort from users to interact with it. In other words, users could send messages from Lens frontend to users on Opensea, who would read messages there, and then reply back to Lens.

XMTP labels and filters conversations based on on-chain identifiers

Lens and XMTP are doing something similar to Meta’s efforts to enable cross-platform messaging and content sharing across its ecosystem of apps (Facebook, Instagram, Whatsapp) to increase user engagement (which otherwise has been on decline). That being said, messaging is a commodity. In the long run, XMTP will probably require application developers who use the SDK to compensate nodes for the messaging service provided to users.

The most convenient method for users would be to have the option to send and receive all application-level messages from a single access point. That could be a popular wallet or a crypto-native browser. However, this would involve a lot of coordination work between wallets and applications. It is unlikely that any wallet will be able to keep up with all the applications spinning up; instead, it’s much more likely that the vertical chats we discussed earlier will prevail for the foreseeable future.

Conclusions

Some things are universal, regardless if they have an on-chain component or not. Messaging is a matter of pure utility, and it has been proven to us by many failed startups building chats.

Pushing further along the utility axis to provide users with features unique to crypto is a hard but worthy endeavor. This type of utility is not as easy to copy as the functionality provided by web2 messaging products. Some examples we discussed were smart messages for commerce, DeFi and social, and on-chain identifiers in chat.

We’ve also pointed out that crypto messaging should inverse the “come for the tool, stay for the network” relationship. What this means is building social and entertainment products that don’t have an explicit attempt to enable messaging; there, it becomes a natural extension of a successful user-facing application.

If you’re a founder thinking about how messaging will improve your product, you know where to find us.

Disclosures: Zee Prime has invested in Dialect, Lens and Push