Fat Penguin CEO: Why is consumer encryption at the forefront of the industry?

Author: Pudgy Penguins CEO Luca Netz; Translator: Baishui, Golden Finance

Last month, we launched www.igloo.inc, followed by the announcement of the acquisition of Frame to build Abstract, an L2 focused on scaling and solving challenges related to consumer crypto. Since then, it seems that the narrative has shifted to consumer crypto, sparking a debate about what consumer crypto really means. In this article, I want to discuss what I think consumer crypto is, why we haven't achieved consumer crypto adoption yet, and why I think consumer crypto represents the most important frontier for this industry.

What is consumer crypto?

I define consumer crypto as the adoption of blockchain-powered applications that provide personal use to billions of people in their daily lives.

However, this definition is too broad, so to be more specific, it’s important to note that I believe consumer cryptocurrency adoption will occur in three phases. I’ve categorized each stage based on spending habits:

• Stage 1: Discretionary Spending

• Stage 2: Necessary Spending

• Stage 3: Required Spending

This chart represents each stage in relation to user adoption growth:

Discretionary Spending — The First 50 Million Users

The initial phase of the consumer crypto revolution will revolve around discretionary spending — consumer-focused businesses built around discretionary or leisure spending, or in other words, applications that take up people’s free time.These types of applications will break out first because they are easier to spread, easier to sell to consumers, and building them on-chain solves problems that Web2 applications can’t.

Businesses focused on discretionary spending tend to revolve around entertainment. In the consumer world, “entertainment” often faces significant barriers to entry, such as payment processor issues, geographic restrictions, and regulations that prevent Internet businesses from scaling and thriving. To illustrate this, let’s look at some of the issues that consumer-focused Web2 businesses currently face:

• Fees:Typical payment processor fees are too high and have too much leverage on merchants. On average, merchants are charged transaction fees of 2.9% to 10%. The higher the risk profile (which is often the case with entertainment apps), the higher the fees.

• Geographic Restrictions:Starting a business in your home country is simple, but global expansion presents significant challenges, especially when it comes to compliance across different jurisdictions. Most applications cannot scale outside of their current jurisdiction. Entertainment is universal, but unfortunately Web2 infrastructure is not.

• Chargeback Risk:Current Web2 applications are limited by the size of their spend. Businesses cannot always capture the true potential of their power users due to limitations set by processors that prevent people from spending the amount they want to spend.

• Censorship: Businesses are at risk of censorship by their service providers, which can prevent them from aggressively scaling or reaching their full potential.

Building consumer applications around discretionary spending is the lowest hanging fruit in the consumer crypto ecosystem and will be the first stage to achieving mass adoption as it will be easier for entrepreneurs building interesting products to build them on blockchain rails. For greater clarity, here are the consumer categories in discretionary spending that I believe are most vulnerable to disruption:

• Gaming

• Social (Creator Platforms)

• Exchange

• Casino

• Gambling

• Digital Collectibles

• Tokenized Culture: Transforming Intangible Assets into Tangible, Tradeable, Redeemable, and Perpetual Assets.

I believe these categories have the potential to drive consumer adoption of cryptocurrency to its first 50 million active users. To support this thesis, here is a list of the most significant consumer crypto applications we see today. Notably, they all fall into the category of businesses whose goal is to capture a share of discretionary spending:

• OpenSea - Digital Collectibles

• Topshot - Digital Collectibles

• Polymarket - Gambling

• pump.fun - Social and Tokenized Culture

• Uniswap - Trading

• Rollbit - Casino

• Pudgy Penguins - Digital Collectibles

• Friendtech - Social

• StepN - Social

• Axie - Gaming

Necessary Spending - The Road to 250M Users

Once you’ve hit 5,000 Once we have 10,000 users, the focus expands to capturing a share of essential spending — integrating crypto into more aspects of life beyond leisure time. This phase includes the following categories of applications:

• DeFi

• DePin

• SaaS

• Digital Media

• Digital Commerce

• Payments

Basic Spending — A World Onchain

After overcoming the essential spending barrier, we achieve breakthrough adoption — adoption of essential spending. This refers to building consumer applications around essential spending that enable users to do anything on-chain that they would otherwise be able to do off-chain. Examples include:

• Online Banking

• Credit

• Tokenization (RWA)

• Insurance

• Data

• IoT

• Identity

• Voting

Now that the path to success is clear, why haven’t we achieved mass adoption yet and how can we get there?

Question: Why haven’t we achieved breakthrough user adoption yet?

Over the past 10 years, consumer adoption has been in the hands of blockchain companies that have raised tens of billions of dollars to further adoption. Unfortunately, few companies have succeeded with this approach, and my answer to that is simply derived from the spirit in which they were founded. My assessment is that many of today’s blockchain companies follow a 0-100 “generic” approach with an ambitious dream of being on track for the next generation of the internet economy. Here’s a visualization of how a generic blockchain might achieve its growth and priorities.

Generic Blockchain:

The generic model is a classic case of fragmentation, and unfortunately, mass market penetration and fragmentation do not go hand in hand. The generic approach is ambitious, but the effort required to achieve it is enormous. As a result, teams that don’t have the necessary talent or resources to implement this approach are likely to go out of business quickly, ultimately wasting time, energy, and resources that could have been invested in achieving mass adoption.

Solution: To achieve a breakthrough, you must focus

I think of blockchains like cities, and like all cities, demand for blockchains is driven by the attractions and activities they offer. Therefore, I believe that the breakthrough in consumer adoption will come from teams that are hyper-focused on curating the top attractions within a city. Once you have an attraction that draws people into your ecosystem, you can then build the city around that attraction.

Blockchain for Consumers:

Based on the above, my assessment is that the reason we haven’t seen mass adoption is not because we can’t do it, but because we haven’t focused on doing it well. General-purpose blockchains and consumer-focused blockchains are not interchangeable. Building a “consumer chain” is more than just a catchy slogan — it’s a fundamental goal and mindset that no one has fully embraced.Recognizing this gap, we saw a unique opportunity in the blockchain space, which led Igloo to acquire the Frame team to contribute to building Abstract.

Our team’s commitment is to build the top destination on-chain, a place that aims to be the most fun destination on the internet — what I call “crypto’s digital playground” or “Disneyland of the internet.” The graphic below highlights our unwavering focus on delivering a superior 0-1 consumer experience without distraction. Over time, once we have built a loyal user base by launching new products to capture other aspects of people’s lives, we can evolve into a general purpose chain. For us, this represents a highly focused strategy, building on achieving specific successes and then evolving from there, compared to the decentralized approach taken by general purpose chains.

Abstract's Path to Success:

Consumer Cryptocurrency Is the Last and Most Important Frontier of Cryptocurrency

Today's cryptocurrency reflects the Internet boom of the early 21st century. In the first decade of that era, innovative infrastructure companies emerged, but few achieved widespread adoption. Over time, only those companies that successfully achieved breakthrough adoption survived and thrived. Cryptocurrency is now at a similar crossroads. After 10 years of building infrastructure, it's time for the industry to break through to the mainstream.

However, the narrative surrounding cryptocurrency is fragile. Currently, the space is dangerously veering towards becoming a haven for gambling and financially risky behavior. As more and more people suffer losses, the idea that cryptocurrency is a scam for degenerate gamblers is slowly deepening in the public consciousness. While this may be a meme for crypto natives, it is a very real concern for the general public and, unfortunately, it is also the narrative currently surrounding cryptocurrency. I worry that if we don’t achieve mass adoption in a meaningful way soon, we risk limiting the potential of the entire industry. This is why I believe consumer cryptocurrency represents the most critical and final frontier in the cryptocurrency lifecycle.

Community Questions

At the end of this article, I asked my X community if they had any questions about consumer cryptocurrency. Here are a few questions they asked and my answers to each.

Question 1

Answer: Tangibility:

One of the biggest unlocks of tokenization is the ability to make the intangible tangible. One of the biggest potential innovations of cryptocurrency may actually be its ability to influence culture through tokenization and extract value from it.Let me explain: Since ancient times, investors have been pegging their investment ratios to literal values, price-to-earnings ratios, or future forecasts. Token value didn’t become a thing until the advent of cryptocurrency, but until now, I haven’t heard anyone describe it as such. To me, a new asset class has been unlocked, a paradigm shift has occurred, and the intangible culture has now become tangible. I think the biggest opportunity in tokenization is the tokenization of influence and ultimately being able to make influence tangible. We have seen products in the past like bitclout, friendtech, etc. try to crack this code. However, I don't think any of them came close to getting it right. In my opinion, pump.fun combined with Bitclout, Polymarket, and an Instagram-style product could become one of the most valuable companies in the crypto space.

Question 2

Answer: Don’t reinvent the wheel just yet

Crypto developers are trying too hard to reinvent the wheel. Some breakthrough consumer products today could be 10x bigger with crypto rails and incentives. Rather than trying to reinvent a model, take an existing one and crypto it. I believe there is a vast untapped consumer crypto landscape and Web2 peers waiting to unlock huge growth potential with crypto rails.