Funnel optimization for web3 companies will become critical to their success. Token grants cost 4-7x than traditional customer acquisition techniques.

Other techniques, like incentivized referral, improve the economics but still tally 19 month payback periods. A year-and-a-half might be fine for a SaaS company selling a $50k to $100k ARR product, but long-term viability demands achieving 3-6 month paybacks of modern web2 consumer companies.

Why are the payback periods so high? Many web3 consumer experiences ask users to complete a Tough Mudder to use the product. For example:

0. Visit the app.
1. Determine the chain on which the app runs.
2. Check if you have a compatible wallet.
3. If not, download one, create an account, and save the 12 word passkey.
4. Check if you have a stablecoin in your wallet that is compatible with the chain.
5. If not, transfer assets to the chain’s automated-market marker or via a cash on-ramp.
6. Proceed through the app’s registration flow.

Assuming a 20% loss of visitors per step, 60-75% of users will attrite before using the product. No marketer can coerce viable unit economics with that intractable anchor of a funnel. Early adopters don’t mind navigating the obstacle courses of raw products. The early majority prefers a smooth asphalt.

Two decades into web2 funnel optimization has yielded the most effective answer: one-click authorization. Signup through Google, Facebook, or Apple, and you’re in. No mention of which database powers the app graces the sign-up flow.

Web3 signup will mimic web2 signups to maximize funnel throughput - with one exception. Behind the scenes, the app provider creates and manages a virtual wallet with crypto tokens for the user. Until the day the user seeks to move their assets, at which point, the user configures a wallet, aligning the point of maximum intent with the greatest friction.

In addition to enjoying efficient funnels, app developers avoid minting, staking, and trading fees until the user wants to move assets out of the app’s ecosystem.

Virtual wallets will form the backbone of the next-generation ads stack, replacing the cookie with a blockchain wallet.

In the next few quarters, web2 marketers will begin to invest more in participating in the web3 ecosystem, seeking the attention of a young demographic who has amassed material wealth in the last few years. Virtual wallets enable web2 marketers to advertise and measure ad performance across the web2/web3 divide.

Blockchain infrastructure is beautiful - a marvel of collaboration across the internet. But like other breakthrough technologies that enable magical consumer experiences, blockchains will disappear from the user’s view, submerged below delightful consumer experiences. Virtual wallets are that first step.