Integrate
Are we building apps or infrastructure? ...Yes
For all we talk about composability, the most successful companies in crypto seem to be trending towards vertically integrating their own products on every layer of the stack.
We wrote about a version of this in our 2022 Year in Review letter:
“As crypto continues to evolve, tech increasingly becomes a commodity and liquidity becomes less of a moat for consumer businesses. We see this in the development of vertical NFT marketplaces and liquidity aggregators like Reservoir, FirstMate, Snag Solutions, and others. These marketplaces provide more flexibility and convenience than ever before — consumers no longer have to go searching across platforms for the best price, and NFT project creators can now spin up their own verticalized marketplaces while leveraging aggregated liquidity. Previously, NFT projects would spend huge amounts of upfront time and capital to build a beautiful mint site for primary sales, and would then immediately let go of their customers by allowing them to move to third-party marketplaces for secondaries. With better tooling, and with liquidity removed as a moat, these projects are increasingly working to own the vertical business with more and more of a focus on brand and user experience.”
We wrote about aggregated liquidity, but this notion of owning an integrated stack extends far beyond that. Coinbase has quickly become the canonical example of what is possible here, with a centralized exchange on top and a blockchain, wallet, stablecoin, and rapidly growing app ecosystem layered underneath. Many large companies in crypto are following suit. Uniswap launched its own wallet. Zora launched its own chain. Backpack launched its own exchange to complement its existing protocol, wallet, framework, and community. There are myriad examples of this, and likely even more to come.
There are a couple key reasons why this is compelling. Each new layer affords new monetization opportunities: value can be captured not just at the “app layer” or “protocol layer,” but instead at any point where a transaction takes place. Importantly, an integrated stack can also provide for a much cleaner consumer experience. The Base team put it well in their blog post: “You should be able to come onchain and barely notice.” Perhaps consider the corollary: any moment where a key UX touchpoint is forfeited to an outside provider is an opportunity for user churn. An integrated stack is often a better consumer experience — and better business, too.
What also excites me about this trend is the innovative tooling that underpins it. For example, companies like Capsule, Privy, Dynamic, and Coinbase WaaS help application developers create wallets for their users to onboard to crypto. Relay, Decent, Light, and Hyperlane unify liquidity across chains, enabling seamless swaps and transactions. When applications own the infrastructure layers underneath, they can be opinionated about what complexities are abstracted away. For consumers, convenience wins. Crypto is highly complex in both its technology and philosophy. We’re seeing collaborative energy, both in how we can create faster, more efficient services for millions of people to use, as well as in how we can leverage that infrastructure to create fluid products that fit within the expectations of great consumer experiences. I’m looking forward to seeing what new types of applications might emerge when developers own the entire consumer journey. Maybe this is just the beginning.
Related reading:
Why Every Winning Onchain App Will Be Social by
The Hidden Costs of Modular Systems by Kyle Samani
Expected Value in Crypto & Building Infinite Blockspace by
TCG Crypto is an investor in Capsule. None of the information discussed herein is intended to be, or should be construed as financial advice, or an offer to sell or a solicitation of an offer to buy an interest in any security. The information set forth herein has been obtained or derived from sources believed by the author to be reliable and has been provided solely for informational purposes. Nevertheless, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness. Certain companies referenced herein are included by way of example and not companies in which TCG has invested to date nor companies in which TCG intends to invest.
Cover image: The Tower of Babel by Pieter Bruegel the Elder
It makes perfect sense for apps that are seeing success at one part of the stack to start vertically integrating. They need to establish a strong foothold 1st though.