3 Development Directions of Web3 Advertising

Author: Mason Nystrom, Partner at Variant Fund; Translation: Blockingxiaozou

The crypto world has long been reluctant to use advertising as a business model.

Advertising often leaves many internet consumers with negative associations. Web2 tech giants extract user data and feed it back to us in the form of hyper-precise targeted ads. Additionally, most small individual creators cannot turn ads into stable income, but rely on subscriptions to earn online revenue.

But advertising combines broad product distribution goals with viable revenue streams, making it one of the best monetization models. This is why social networks and search networks use ads to subsidize their platforms, and top content creators use ads as a revenue model on platforms like Substack and Spotify, rather than subscriptions.

The openness of crypto protocols breaks the traditional platform business model that relies on isolated data and specific users. The core elements of the Web3 advertising stack have emerged, including advertisers, ad protocols, markets, and applications. Cryptocurrency platforms need to find viable business models, and advertising is waiting patiently on the sidelines to be adopted.

However, Web3 advertising doesn’t have to mimic Web2 advertising. Although all components of the Web3 advertising stack are important for the future of native crypto advertising, let’s focus on the fundamental part of the advertising stack, which is the advertising itself.

1. Emerging Web3 advertising models

The Web3 advertising space will be defined by the following three emerging models:

· On-chain advertising: NFT ads, NFT referral links, and NFT ownership of ad space.

· Token-managed advertising: tokens that manage key assets on a platform, namely, homepage content, storefronts, and NFT releases.

· Hybrid advertising: traditional off-chain ads that use on-chain protocols or attribution engines to connect on-chain and off-chain data.

(1) On-chain advertising: NFT ads and consortium programs

CryptoSlam, an NFT data aggregation platform, is one of the first on-chain advertisers attempting to use NFTs to grant ownership of banner ad space on its homepage. For several weeks in January, each NFT ad corresponded to a specific day’s banner ad and could only be redeemed through CryptoSlam, allowing the NFT aggregation platform to enforce content control.

By further converting ads into NFTs, CryptoSlam can create a secondary market for its ads, turning them into a valuable asset and providing ongoing royalty income. Importantly, collecting ad NFT royalties will be straightforward, as the platform or ad protocol can require buyers to pay royalties to gain ad utility.

In addition to NFT ads, crypto technology can facilitate more efficient and dynamic affiliate programs. Alliance networks can provide on-chain referral links using tools like ShareMint or Fuul, dynamically reward referrers, use token gating for target reward programs, and combine off-chain data with on-chain operations and conversions. Sound.xyz is a music NFT minting and marketplace protocol that uses a “curator reward” mechanism; fans earn 5% of primary revenue through their referral links and playlists. As more off-chain actions become on-chain experiences, alliance networks and curators that create value throughout a product marketing lifecycle will have the potential to receive economic incentives and rewards.

(2) Tokenized Ad Management

Companies spend money on social networks to gain attention. In Web2, paying Google for ad space allows a website to appear at the top of search results, which is crucial. Crypto platforms can also use tokens as a tool for managing attention.

NFT art platform SuperRare uses its RARE token for management in a few ways. First, SuperRare uses token holders’ governance rights (i.e., voting power) for SBlockingce contests, which determine which entities or individuals can create SuperRare SBlockingce storefronts. In SuperRare, galleries are valuable digital assets that can effectively serve as ads, as headlining SBlockingces can receive more views and sales.

Management can go further. Imagine if you could use tokens to control which storefront appears first on your website/marketplace/social app’s homepage? In this model, management tokens function like a fluid ad, but with an added benefit: token holders receive a portion of the revenue from storefront and SuperRare protocol sales. Management can give tokens extra value and provide utility for platform stakeholders. Importantly, it can also continue to drive value for underlying protocol tokens (RARE) for market applications like SuperRare.com.

(3) Hybrid Ad Protocols

Several companies, such as Pindl, Wav3s, MadFi, Slise, and Hypelab, are building protocols that focus on user activity attribution. That is to say, they connect users’ off-chain and on-chain identities. For example, if an NFT market wants to know if its marketing campaign is effective, it can use an attribution protocol to track the activities of individuals who clicked on a referral link or Twitter ad, to see if they actually visited their protocol and converted by buying an asset on the marketplace.

Ads will naturally adapt to the new protocol. For example, the advertising protocol Wav3s integrates with Lens, directly entering the open social graph and promoting creator advertising. Wav3s allows creators to pay people who promote their content (such as retweets). More importantly, it shares a certain proportion of the promotion volume generated by each application with Lens applications such as Phaver, Orb, and Lenster. Platforms like Layer3 also offer new ways of acquiring users; if users complete certain on-chain actions, companies can promote and reward them on the platform.

2. How will Web3 advertising develop?

Few Web3 companies or protocols see advertising as a business model, which leaves many unresolved questions for the future development of Web3 advertising:

· Will ads remain off-chain or enter the chain in the form of NFTs?

· Can distribution control platforms (such as markets, aggregation platforms, and social media platforms) still control their attribution engines, or will the openness and permissionlessness of Web3 data allow third-party attribution protocols to offer more powerful activity tracking and user analysis capabilities?

· What unique ways does Web3 have to acquire attention?

My hypothesis is that while the prospect of a universal protocol that provides cross-platform advertising services is exciting, it is also the least likely model to dominate without distribution in the long run.

Even in a world of open-source data, applications or markets that control user distribution and attention are likely to try to control their advertising experience. This may be because they want to regulate content, increase click-through rates, or more effectively use off-chain data to accurately target customers in their applications. Attribution protocols will still have a place in the crypto space, but I think they may be swallowed up by leading crypto social platforms, just like Google’s acquisition of AdSense.

The difference this time is that the value of the attribution engine is obvious. AdSense was sold for $102 million, and the effect of these agreements will be ten times that.

Under this assumption, the on-chain advertising publishing platform is what interests me the most- that is, the platform that treats advertising as an asset class- and the applications that leverage new advertising models.

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