Momint's End: Lessons for Web3 Startups in Emerging Markets

Momint, a Web 3.0 startup focused on NFTs and music fan engagement, recently bit the dust. This confluence of events underscores the tremendous hurdles that businesses in this new frontier of the market encounter, particularly in poorer, developing areas. Web3’s promise of decentralization and innovation is attractive. There are significant obstacles to developing sustainable businesses in this arena. Li Wei, a blockchain content strategist with experience in China's tech sector, analyzes the situation and extracts key lessons for navigating the Web3 landscape.

Funding Challenges in a Shifting Landscape

Funding is always the biggest priority for any startup, but for Web3 companies the challenges are all that greater. After the initial hype-fueled exuberance of this new technology started to tarnish, investor skepticism grew. Just having “Web3” listed as a bullet point on a pitch deck won’t cut it anymore. Those realities are catching universal attention as investors demand more mature business models and demonstrable traction.

The broader economic environment has turned decidedly against them as well. Inflation and the recent jump in interest rates have investors skittish. Needless to say, the crypto winter and subsequent collapse of FTX have only exacerbated this risk-averse sentiment. Fundraising objectives are harder to meet as capital becomes more expensive and fund managers scrutinize businesses more thoroughly, favoring later-stage companies over early-stage ventures. We know that Web3 is changing quickly. New chains, protocols, and platforms are being introduced every week, adding to the complexity of the landscape and making it difficult for startups to decide on a stack and demonstrate long-term value.

Navigating the Regulatory Maze

Regulatory uncertainty is the greatest issue facing Web3 startups, particularly in developing markets. Governments around the world have struggled with how to regulate cryptocurrencies and other blockchain-based applications. Stringent sanctions regimes in the US and EU, designed to exclude those illicit actors from their economies, are hazardous for Putin’s enablers. Accordingly, it poses enormous compliance risks to Web3 companies.

The SEC’s ramped-up enforcement actions in 2023 in the enforcement against cryptocurrency offers a clear illustration of the further regulatory scrutiny. Web3 startups must meet traditional regulatory requirements, such as Know Your Customer (KYC) measures, while simultaneously upholding decentralization and privacy principles. Delivering on all these conflicting requirements takes foresighted planning and the use of powerful new compliance technologies. They need to leverage machine learning and other techniques that go well beyond standard KYC practices. This entails sanctions screening and zero-knowledge proofs to ensure compliance. When businesses and individuals are uncertain on what the regulatory environment will look like, they become reluctant to adopt Web3 technologies. This reluctance limits both adoption and expansion in the industry.

Overcoming Adoption Barriers

Beyond funding and regulation, there are major barriers to user adoption that Web3 startups need to overcome. Excessive transaction fees on Ethereum and other blockchains have pushed many users off onto other chains whose fee markets encourage lower transaction costs. This transition has introduced fragmentation and difficulties in attracting and retaining users. In addition, the complexity of blockchain-based accounts creates an additional barrier to entry. To obtain a full picture of an account’s assets, services must execute complex and real-time fetch tasks. This usually requires leveraging node machines or centralized block explorers and data services.

Scalability challenges conspire to undercut Web3 applications’ promise. Existing blockchain solutions are unable to scale to high volumes of transactions, preventing them from reaching mass adoption use cases. Coming months ahead, this promise to further develop better scalable solutions is welcomed, but it calls for large-scale investments aimed at research and development.

Here are some barriers that Web3 startups must overcome for adoption:

High Gas Fees
Complexity of Blockchain Accounts
Scalability Issues

Based on Momint's experience and the broader challenges facing Web3 startups, Li Wei offers the following actionable insights:

Know Your Customer (KYC) measures
Sanctions screening
Zero-knowledge proofs

Actionable Insights for Web3 Startups

By learning from the experiences of companies like Momint and proactively addressing the challenges of funding, regulation, and adoption, Web3 startups in emerging markets can increase their chances of building sustainable and impactful businesses.

Focus on solving real-world problems: Instead of simply leveraging blockchain technology for its own sake, focus on developing solutions that address specific needs and pain points in the target market.
Prioritize regulatory compliance: Engage with regulators early and often to understand the evolving legal landscape. Implement robust compliance measures to mitigate risks and build trust with users and investors.
Build a strong community: Foster a vibrant and engaged community around the project. This can provide valuable feedback, support, and advocacy.
Iterate and adapt: The Web3 landscape is constantly changing, so be prepared to iterate on the product and business model based on market feedback and technological developments.
Seek strategic partnerships: Collaborate with established companies and organizations to gain access to resources, expertise, and distribution channels.
Manage expectations: Be realistic about the time and resources required to build a successful Web3 business. Avoid overpromising and focus on delivering tangible value to users.