In our latest piece, we articulate our investment thesis for Web3 front-ends.
Historically, we have been skeptical about the value capture of front-ends. Their primary challenge has been their limited differentiation; every front-end is a different lens on the same shared back-end. Moreover, the switching costs between front-ends are low: users merely need to import their private key into another wallet or sign into another web app; all their information is preserved on the universal back-end.
These arguments have merit. However, we believe their conclusion — that front-ends will not accrue defensible value — is mistaken. On the contrary, we expect that front-ends will become some of the most valuable businesses in Web3.
Our conviction has been shaped by following new developments in the transaction supply chain, monitoring the latest innovations in front-end UX, and observing user behavior.
Payment-for-order-flow:
New MEV rebate infrastructure like MEV-Share, Suave, and UniswapX will shift MEV revenues toward front-ends and their users. Front-ends will become increasingly MEV-aware, and we expect that any front-end able to meaningfully monetize their orderflow, like trading platforms and application-agnostic wallets, will do so.
Exclusive User Experiences:
We have seen three recent innovations among front-ends that unlock UX network effects: fine-tuned LLMs, wallet extensions, and application partnerships. These developments allow front-ends to create unique, defensible user experiences.
User Behavior and Monetization:
The biggest factor in convincing us of the value of front-ends was observing user behavior. Users are largely fee-insensitive. For many users, convenience and safety beat cost competitiveness. This means that front-ends with strong brands can maintain their customer base despite cheaper alternatives.
For a full overview of our front-end thesis, check out our article below.
If you’re building an innovative new front-end for Web3, we’d love to chat.
https://lnkd.in/eZHn8QjF
