Web3's decentralized nature has fostered composable, open architectures and protocols, spurring innovation but also creating the following challenges for projects seeking a sustainable competitive advantage:
š§ Barriers to Entry: Composability and open protocols ease market entry, leading to a saturated competitive landscape and making differentiation a daunting task.
š Technology Replication: Most Web3 technology components are like lego bricks, readily available for any project to build & serve specific use-cases. This enables easy feature replication, causing service commoditisation and forcing competition on pricing (wherever applicable) or user experience.
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Weakened Network Effects: Composability allows seamless integration between projects, undermining network effects and making user retention more difficult.
ā° Value Capture Dilemma: Open architectures hinder value capture, impeding projects' ability to generate sustainable profits and invest in growth.
A few ways Web3 projects could navigate these challenges would be through:
1ļøā£ Cultivating strong developer ecosystems
2ļøā£ Prioritizing user experience
3ļøā£ Forming strategic partnerships, and
4ļøā£ Focussing on community involvement and governance through aligning actions with long term incentives
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