Introduction#
This is the fifth article in the DApp Construction Guide. Please refer to the previous articles for more information:
At the end of the previous article, "Finding a Niche Market," there was a paragraph that said:
Blockchain has given us a potentially limitless global market. By building a DApp, we can create a machine that serves global users 24/7. If this machine can earn $1 from each person, when the blockchain industry develops to the scale of the current internet, I will receive even greater returns.
Of course, not all developers can seize the opportunity to become leaders in a specific field. However, we can consider another entry point - focusing on the long tail demand.
The Long Tail Effect#
The Long Tail Effect refers to the phenomenon where the cumulative sales of relatively less popular types of products can exceed the total sales of popular types of products, providing business opportunities for selling low-frequency products. This phenomenon is due to the popularity of the internet, which has gradually reduced the production and storage costs of goods. As a result, more and more products can be manufactured and sold, and the internet also makes it easier for consumers to discover and purchase these relatively niche or long-tail products. - ChatGPT
Internet technology eliminates friction in production and transactions, reduces costs, and increases returns, resulting in more efficient transactions and the formation of long-tail effects in relatively niche markets. Blockchain is built on top of internet architecture and possesses characteristics that are more suitable for creating long-tail demand and forming long-tail markets.
The Long Tail in Blockchain#
Blockchain naturally possesses financial characteristics, and its digital currency assets have demands for issuance, trading, management, and other long-tail needs. By focusing solely on the demand for assets, many long-tail markets can be established. Additionally, as blockchain technology is still in its early stages of adoption, the probability of creating segmented long-tail markets is high. Furthermore, we can explore which elements are conducive to the formation of long-tail markets based on its technical characteristics.
Non-stop Business#
DApps are a collection of businesses based on smart contract carriers. They exist on the ledger of a public blockchain. The characteristic of a public chain is to provide open and unbiased accounting services to anyone under any circumstances through consensus algorithms and economic mechanisms.
Developers can also build business logic based on public chains and develop DApp products. The cost is that users need to pay "transaction fees" to blockchain producers when calling contracts on the chain to maintain the sustainable operation of the public chain ledger.
Therefore, DApp contract businesses on the blockchain can continuously provide services to users, and developers only need to bear the gas fees for deploying contracts to complete the startup work of the business. Even if developers stop maintaining the DApp, it will not affect users who have used the DApp before.
For example, even after the Uniswap V2 version was upgraded to V3, it is still accessible through community-deployed decentralized Uniswap V2 clients or scripts developed by developers that directly call contracts on the chain. The on-chain contracts can still continue to serve users and generate income for liquidity providers.
Therefore, as an environment for running DApps, public chains naturally have advantages in serving long-tail markets.
Immutability and Transparency#
The immutability of the blockchain makes it difficult to update smart contracts once they are deployed. The logic written in smart contracts cannot be changed. After the contract's source code is open-sourced, users or third-party auditing agencies can verify the reliability of the contract code through various means or find vulnerabilities. This promotes a stable business structure.
The open-source nature of contract code and the bottom-up operating model have helped many DeFi protocols achieve growth from scratch. It has also built another type of ownership-based financial market, solving trust issues in financial scenarios. A large number of financial transaction demands have emerged. DeFi protocols can solve the middleman problem faced in traditional finance at a low cost.
To some extent, this can form a consensus. Service providers and users of services reach an agreement, and the execution of this agreement is written into the blockchain and executed by contracts. It is verified through various means. In a sense, it is also accepting market validation.
Immutability and transparency are the two cornerstones of DApps. They ensure that all market participants can interact according to the rules in the contract without third-party intervention, forming a more benign and sustainable long-tail market.
Contract Standards and Composability#
We all know that smart contracts are Turing complete programming languages, so writing business logic with smart contract languages provides great flexibility. In addition, contracts can call each other, so contract standards are very important.
For example, the ERC20 (fungible token FT) and ERC721 (non-fungible token NFT) that we are familiar with are the foundation of Web3 assets and culture. Without the widespread adoption of these two standards, we would not see the thriving blockchain market today.
The value of standards lies in the fact that if I am a developer, I can serve assets and protocols that are compatible with the standards by supporting the standards. Developers can write business logic based on standardized abstract interfaces, which can reduce the workload of adapting to different standards and improve efficiency.
Similarly, choosing the right standards can expand the scope of developers' business extensions and inject long-term vitality into their projects. It can not only serve the long-tail market but also make the project itself part of the long-tail market. Think about how all Web3 projects consider issuing tokens or NFTs as their own business rights or project ownership, attempting to build long-tail assets through the long-tail demand of token transactions.
Conclusion#
Niche markets and long-tail markets are two leverages that naturally fit together. In the early stages of the industry's development, building long-tail services in niche markets can achieve industry growth returns at a low cost as the market develops and users become more widespread. This is the most worthwhile opportunity for developers, in my opinion, to explore.
Life is like a snowball. The important thing is finding wet snow and a really long hill. - Buffett
Quoting Buffett's words, finding a niche market is like finding wet snow, and focusing on the long tail market is like building a long snow slope.
2023-04-18