Marketers battle the forces of indifference, skepticism, and inertia at every stage of the marketing funnel until they reach retention. Retention is the step when the potential user has already converted to becoming an actual user. The goal of retention is defense: to keep the user coming back for more and avoid losing them to a competing product. At this point inertia actually works in a project's favor. Just as in Newtonian physics, when an object in motion stays in motion, the user of a product will continue using it, so long as they continue having the same problem and the product continues to offer the best solution to their problem. A few of the best mechanisms to retain users are having a sticky product, offering incentives, and building a reputation for keeping promises to the community and delivering against a road map.

A sticky product is defined as one to which users are likely to return and continue using and engaging on a regular basis. The opposite of a sticky product—let's call it a slippery product—either solves the user's problem after a limited number of uses and sends them on their way, or lacks a built‐in mechanism to motivate a user to return. A Web3 wallet such as MetaMask is an example of a sticky product, because moving all of one's tokens into a new wallet causes friction, and users must be motivated in order to overcome friction. The more motivated they are and the less friction required for a user to switch products, the more likely they are to slip out of using the original product.

DeFi protocols can be less sticky products. If another protocol offers higher yield per perceived amount of risk, a user is likely to go elsewhere. That being said, DeFi protocols, similar to other Web3 projects, can use community channels to make their products stickier. NFT collections frequently increase their stickiness with their community channels, which can become part of members' daily lives. If a Bored Ape NFT buyer joins the Bored Ape Yacht Club (BAYC) Discord server, and the conversation on those channels is entertaining or useful, that buyer is more likely to retain their Bored Apes or buy more BAYC NFTs to continue having access to the community channels—if they sell all their BAYC NFTs, the token‐gating mechanism on Discord kicks them out of the server, and they lose access.

Another mechanism NFT collections use to retain community members is rewarding NFT holders with further NFTs. For example, BAYC airdropped Mutant Ape Serum NFTs to all the Bored Ape NFT holders. Holding a Serum NFT allowed the Bored Ape NFT holder to mint a Mutant Ape. Mutant Apes became valuable NFTs of their own, though currently less valuable than Bored Apes. Holders also traded the Serum NFTs themselves. NFT projects like BAYC that offer existing holders additional fungible tokens or NFTs develop a reputation over time for rewarding their communities, which leads holders to retain or buy more of them.

Projects can also offer existing holders—or any set of on‐chain wallet addresses they want, even those with a history of using a different product, because the history of wallets that have engaged with a given dapp is public on the blockchain—the opportunity to join a whitelist or allow list, which entitles them to future airdrops, claimables, or opportunities to purchase further tokens. When Adidas and Prada launched a digital artwork NFT drop together, they reserved 1,000 of the 3,000 NFTs to be minted for wallets that had purchased a previous collection of Adidas NFTs.¹ This is the future of reward programs. Any Web3 project—from DeFi protocols to Web3 utilities to NFT collections, regardless of whether their product is inherently sticky—can use the substrate of Web3 to design incentive systems that improve retention.

Web3 incentives to promote retention can be intrinsic or extrinsic. Take Friends With Benefits, for example. It is a token‐gated DAO community on Discord that is a meeting place for individuals joining the Web3 movement from the cultural sphere. Many of its members work in music, arts, entertainment, media, or gaming. Some have spent years working in Web3; others are looking for information, seeking jobs, or new product recommendations. Friends With Benefits frequently hosts parties during major Web3 global conferences that are open to community members. The community has a fungible token called FWB that can be purchased on DEXes such as Uniswap. Although anyone can buy the token and participate in the DAO's governance, only approved applicants can become proper “members” who are invited to tiered participation contingent on holding FWB tokens. An approved member holding five FWB tokens can connect their Web3 wallet and gain admission to “local” events and limited Discord channels; a “global” member holding 75 FWB tokens has full access to events and all Discord channels.² At the door of IRL events, attendees may be asked to show mobile wallets that prove they hold a minimum number of tokens. Most of the members of Friends With Benefits don't hold FWB primarily because they speculate the value of the tokens will increase—though through the logic of the tokenomic design, the more demand to join Friends With Benefits, the more buy pressure on the FWB tokens required for membership, and therefore the higher the price—but rather because they wish to enjoy the benefits of the community. If they were to sell their tokens, the Discord server would boot them out, and they would lose access to in‐person events and the digital community. To the degree that projects deliver their communities value that isn't purely financial, they can promote retention with intrinsic incentives. Any community—from a DeFi protocol to a Web3 utility to an NFT collection—can offer intrinsic incentives to retain users or holders by fostering active community channels with content that engages their target audience.

A well‐known example of a community forming around the potential for extrinsic rewards with the result of promoting retention is the Link Marines. Chainlink, the decentralized oracle project, developed a hardcore group of fans that called itself the Link Marines, after the Chainlink token, LINK. At the start, the Link Marines mostly appeared to be young, predominantly male crypto investors who spent time on the online message board 4chan. In their community channels, the Link Marines created their own memes, often politically incorrect, about the strengths of the Chainlink project, which they shared rampantly on Crypto Twitter. They dared each other to buy more LINK—even to the point of holding a “suicide stack” of the token (that is, so much that if its price crashed, they would lose most of their value)—and berated anyone threatening to sell their LINK. The Link Marines community wasn't for everyone, but its members had fun and found companionship in coming together as a group to try to achieve economic goals. As the group achieved critical mass, it arguably contributed to the price of LINK soaring over many consecutive months. Even token investors who weren't explicitly part of Link Marines would hear or see on Crypto Twitter that Chainlink had an army of militant fans. “It must be good if it's inspired so much confidence from all these people,” they might think. This third‐party confirmation probably made some new potential buyers more likely to participate and existing holders of LINK more likely to retain their tokens instead of selling them.

If projects forming their early communities are like spaceships lowering their ladders for people to board, as per our previous analogy, who boards those ships matters a great deal for retention. Many Web3 projects appear at first glance to have thriving communities because they have large followings on Crypto Twitter. However, if projects attracted those audiences primarily with giveaways, not caring if the early audience members are likely to actually use a product or contribute to the project, the resulting communities are unlikely to stick around once the rewards run dry.

Those who have spent time in Web3 communities recognize the exhausting refrain of “wen token,” a partial joke that members use to ask repeatedly when a project will launch its token, often suggesting they will leave once they've collected and dumped it. Distributing fungible tokens or NFTs to existing users of a product is a wise strategy to optimize the chances those audience members will choose to retain their tokens and continue using the product. Past behavior is the best predictor of future behavior. If a project airdrops its tokens to wallet owners who don't care about the project, they will most likely sell them as soon as possible, cashing them in for tokens they believe will increase more in value, or for stablecoins or fiat currency. The highest‐leverage mechanism a project can use to promote long‐term retention is carefully considering how it forms its early community. Marketers should thoughtfully select their target audiences, welcoming in those who are most likely to buy, use, or contribute.

Oftentimes communities stick around because they believe in a project's road map. The Azuki NFT collection by gaming project Chiru Labs is a perfect example of retention as a function of winning—and losing—community trust. Azuki NFTs feature anime‐style avatars with different characteristics. Beyond PFP utility, each NFT grants the holder access to The Garden, Azuki's token‐gated “metaverse” community. Although Azuki's website straightforwardly defines the current state of that metaverse as a Discord server and Twitter Spaces, the website also includes a robust road map of future activities and capabilities for the collection—IRL events, exclusive apparel drops, an immersive metaverse world, a variety of games and experiments related to the characters in the collection—many of which point to possible events that could drive step‐function growth in the value of the project (for example, a land drop accompanying the metaverse world launch). The beautiful design of the NFT art, the website, and across all of Azuki's social and community channels inspires confidence that the team behind the project could execute against its full vision. An Azuki NFT buyer might retain the token for intrinsic or extrinsic reasons, or a mix of both. The potential for growth is exciting to speculators looking to resell the token later at a higher price; the idea of accessing special channels, events, and someday a game and metaverse world, is intrinsically exciting to others.³

Whereas Azuki's road map inspired confidence—the January 2022 launch sold out in three minutes, followed by a steep rise in prices on the secondary market—a May 2022 blog post by one of the founders discussing his abandonment of multiple previous, failed NFT projects led to a massive loss of confidence, especially when Crypto Twitter investigators pointed to potentially shady practices at these past projects. Token prices tanked and as of this writing have stayed well below their early 2022 peak. Azuki continues, but whether it can regain the community's trust, retain members, and build out its initially promising vision remains to be seen.⁴

Often newcomers to Web3, especially to the NFT space, criticize the industry as being full of speculators, with few actual users. These skeptics often don't understand Web3 and approach it with a narrow Web2 mindset, where builder, user, and investor are separate roles, each with at least partially adversarial incentives toward the others. With this mindset, a community full of speculators means a project lacks real users. What these skeptics fail to understand is the way Web3 projects collapse the categories of builder, user, and investor into a single aligned unit called community. The motives of community members are often blended. A community member may behave like a speculator and resell a token for more value; they may also decide a game is so much fun to play, or a community so valuable to participate in, that they continue to hold the token. Some community members join with a particular agenda; others watch how a project executes against its road map, rewards loyalty and use, and fosters a sense of belonging on its channels to determine their behavior.

To retain users or holders, a Web3 project should plan its long‐term technology road map, consider publishing it on its website, and keep existing community members up to date on its rollout with regular messaging, community meetings and forums, and public social posts. On the one hand, projects that follow through on their road maps over time inspire trust and earn retention. On the other hand, projects that deceive their communities or fail to deliver on their road maps can not only harm their own reputations but also chip away at the credibility of the Web3 space at large. Unfortunately, a number of scammers lured by the potential for value capture, as well as incompetent teams that overpromise and underdeliver, have harmed the reputation of the early Web3 industry, especially in the eyes of generalist users, institutional investors, the media, and some regulators. However, as more high‐quality Web3 projects emerge, making plain to these audiences the beneficial use cases of the technology, and as the Web3 community evolves an immune system for identifying scam projects—its own decentralized version of Consumer Reports or the Better Business Bureau, which we are already seeing with companies such as Messari that independently evaluate Web3 projects—it will naturally become easier for potential users to determine quality. Scams will always exist wherever there is money to be made, but many will be deterred over time as that immune system strengthens, similar to what we saw in the early web.

Web3 marketers are only just beginning to unlock its potential to retarget and retain communities. Increasingly, they are realizing that the blockchain is the best CRM (customer relationship management) software known to humankind. In Web2, what platforms like Facebook and Google are selling to advertisers is largely identity information that enables the advertisers to granularly target potential customers with particular attributes that make them more likely to buy the product being advertised. These platforms collect identity data from users and use correlations from this data to extrapolate buying behaviors. For example, a man living in a rural farming area is more likely to buy a tractor; a woman with a cat as her profile picture is likely to buy cat food. Possibly, though, the man lives in the countryside because he likes hiking, and the woman is actually allergic to cats. This example is obviously oversimplified, but it shows the limitations of extrapolating buying behavior from identity. The best way to predict future buying behavior is simply to see past buying behavior.

On the blockchain, there is an immutable public record of the wallet addresses that have purchased any on‐chain assets. These addresses may or may not be linked to any discoverable identity information—but such information is unnecessary. If a marketer for a Prada NFT knows which wallets have previously purchased Prada NFTs—or Louis Vuitton NFTs, for that matter—they can target those wallets with a whitelist, airdrop, or claimable. They don't need to know anything about user identity because they have direct access to the past history of buying behavior. By using the blockchain, companies can achieve their goal of targeting specific audiences, while preserving users' pseudonymous privacy.

Marketers can get even more surgical using on‐chain data for retargeting or retention. For example, let's say Prada wants to incentivize its community to hold on to NFTs as long as possible. In this case, marketers could target wallets that have held a given NFT for a minimum period of time. If Prada wanted to reengage community members who sold their NFTs, they could target wallets that at one point held Prada NFTs but didn't any longer. If marketers want to take respecting user privacy a step further, or if users demand it, they will increasingly be able to leverage zero‐knowledge proofs (ZKPs), a technical advance in the Web3 space that enables verification that a wallet holds certain tokenized assets without visibility into the contents of the wallet. Blockchain platforms such as Ethereum and Polygon are actively integrating ZKPs in order to unlock this functionality. With pseudonymous wallets plus ZK integrations, Web3 offers marketers truly powerful CRM tools to create custom campaigns to incentivize desired behaviors, without knowing the identity of a particular user or even what other property they hold.

Just as Web3 opens the door to new retention strategies, it can also make products more slippery. Take the example of SushiSwap and Uniswap from Chapter 3. Because Uniswap is open source like many Web3 projects, it was trivial for another project to copy its code, relaunch it with minor modifications, and quickly stand up a competitor. This is the beauty of open source code: anyone can use it, or use pieces of it, to easily make their own products. Each new line of code adds to the total store of knowledge, which helps more development happen faster. At the same time, this can be an open source project's downfall, because it radically lowers the barrier to entry to creating copies. While Web2 companies defend their products from competitors by using proprietary software that would be difficult to copy, open source Web3 projects depend on network effects and reputation over the long term to create moats around their products to defend them from losing users to new market entrants.

An environment where competitors can easily copy the code base of a project means Web3 marketers can't rest on the laurels of building an excellent product with a thriving community. They must not ignore the last step of the marketing funnel: prioritizing strategies to promote stickiness and retain existing users. The value of a Web3 project over time comes not only from the quality of the product and the team behind it but also from its ability to incentivize high‐quality contributions from community members, factors that lead it to innovate successful new products and features that a simple copycat wouldn't be capable of creating.

The inherent properties of the technology make the retention game for products vastly different between Web2 and Web3. Whereas the Web2 business model incentivizes building a product and putting a wall around it so no one can see it and copy it, the Web3 model opens up a project's code base for everyone to use, forcing the original project to stay nimble and creative and continue innovating. Ultimately, the former leads to walled gardens and information silos; the latter model incentivizes more high‐quality development to happen faster and more collaboratively across an ecosystem. If we could only use one encyclopedia forever and had to choose between Wikipedia and Encyclopaedia Britannica, most of us would choose Wikipedia. Because of its large pool of contributors and ability to evolve over time, it's more useful to most of us.

It's logical to expect that the highest‐quality products will emerge from projects taking an open source Web3 approach to development. Building in the open has its risks, such as copycats, but these risks are worth it to those who want to build the best products. For Web3 projects, the best moat for defensibility isn't building proprietary software, it's building community and reputation over time.