New Industry, Same Lessons: Reflections from a Web3 Startup

I spent the last four years building Asset Layer, a startup in the Web3 gaming space. Even though we ultimately failed, I’m extremely grateful for the opportunity to learn some essential startup lessons. Here’s the biggest one.

My high school piano teacher and mentor gave me a lot of great advice, perhaps none wiser than his recommendation to learn from the mistakes of others, since learning from your own is much more painful. In the startup world, there’s perhaps no more common mistake than spending significant time and money building a product or technology that no one actually wants. This is best captured by the now-cliché saying, “Start with the problem, not the solution,” implying that if you start with a solution instead of a problem to solve, you risk building something no one is willing to pay for.

Back in 2020, when my co-founder Dave Mullen-Muhr and I began discussing the venture that would eventually become Asset Layer, “start with the problem, not the solution” was a piece of startup wisdom we would have easily parroted, having spent the preceding two and a half years working in venture capital together. But, like any sage advice handed from one generation to the next, peer pressure provides the perfect context for it to be ignored.

In the blockchain industry in 2020, starting with the problem was the exception, not the rule. This isn’t to say there was no pretext for blockchain solutions being built to solve real problems. Nor is it to say that blockchain solutions couldn’t solve real problems. However, I’d argue that most blockchain solutions were built primarily for blockchain enthusiasts and speculators who value the novelty and intriguingness of blockchain solutions over the degree to which they actually solve the real-world problems they claim to solve.

At Asset Layer, we were aware of this dynamic. We didn’t want to build a product merely to attract blockchain speculators. We wanted to solve real problems. But we still ended up making the exact same mistake. Our mistake was taking for granted that the problems the blockchain world claimed to solve were 1) real problems and 2) best solved by blockchain. We believed that the reason blockchain solutions were seeing more adoption from speculators than the alleged target markets were that existing solutions were too expensive and complex. We thought if we could create blockchain solutions that were simpler and cheaper, we’d be able to solve these stated problems and achieve mass-market adoption.

After a couple of quick pivots and refinements early in Asset Layer’s history, we found ourselves building an NFT gaming platform with the thesis that by creating a simpler, more efficient NFT solution for games, we could truly solve the problems NFTs were supposed to solve for games. At the time, the hype around blockchain gaming centered on two core value propositions. The first was the ability for players to truly own their game assets, with one of the main benefits being the ability to trade those assets with other players for real money. The second was the ability for game assets to move seamlessly between games and apps, opening a world of new creative possibilities through interoperability.

I’m extremely proud to say that through a huge amount of effort, resourcefulness, and innovation, our team accomplished our goals of making an NFT platform that was far simpler and more efficient than competing solutions in the market. We ended up minting over 20 million NFTs at an average mint cost of less than $0.001. We created the first freemium NFT game, showing new possibilities with low-cost NFTs. We developed the first read-write NFT API with zero need for creating smart contracts or managing any other blockchain complexity. Through our platform, we supported the launch of over 15 games and apps.

But, we didn’t gain mass-market adoption. Not even close. And neither has anyone else, at least so far. This isn’t to say no one will. Blockchain gaming companies have raised more than $15 billion and made huge strides over the past few years. I fully expect to see hit games come out of the blockchain gaming world. However, the mainstream gaming industry just hasn’t embraced blockchain solutions. According to the Game Developer Conference’s 2024 State of Gaming Industry survey, only 2% of surveyed game developers are using blockchain, with 4% having used it in the past but then stopped.

I think the main reason blockchain technology has struggled in gaming is that the problems identified by the blockchain industry were actually features. Being able to trade your game assets for real money and move them from game to game are interesting features, but the absence of these features is not a problem. A problem is something you’re willing to pay money to make go away. Empirically, these features don’t fit that bill, and a big reason is the tradeoffs, both from the nature of these features and the associated costs and complexity.

As the cost and complexity of integration come down, I think these features will become more appealing to a subset of games, leading to meaningful adoption of technology that can provide these features, which may or may not include a blockchain component. But, selling features with unclear benefits and clear costs is extremely difficult, and it probably wasn’t the right approach for a seed-stage startup.

Someday — maybe soon, maybe not — I plan to start another venture. There are a lot of things I’ll do differently next time. One thing I can promise is that I’ll start with a clear problem that I know target customers would be willing to pay to solve. If I couldn’t learn that lesson from someone else’s mistake, I can at least learn it from my own.