(The lack of) utility in Web3 – Tomorrow Explored Podcast

2022-12-22

Tomorrow Explored Podcast ventures into the decentralized discussion space. In this episode, we will find out why Web3 projects often lack utility and what are the elements to keep in mind when setting up your Web3 idea for success.

Our guest speaker is TX’s Chief Design Officer Mikael Koskimaa, who throughout his career, has made new technology more accessible to people.

Watch the video podcast on Youtube, or simply listen on Apple Podcasts or Spotify.

Transcript of the “(The lack of) utility in Web3” episode

Ari Ojanperä (AO): Welcome to another episode of the Tomorrow Explored Podcast. Our topic for today is about creating utility and sustainable demand for Web3 services. How do we include utility in Web3 and create long-term demand for tokens? I’m your host Ari Ojanperä.

Today is a bit special because we’re recording this face-to-face with TX’s Michael Koskimaa. Great to see you.

Mikael Koskimaa (MK): Yeah thanks, thanks and welcome to my home actually.

AO: Yeah, so for those who are watching. We’re now here at the Micke’s home in Gran Canaria, in the Canary Islands. It’s quite warm outside, but now we’re here indoors, with you and your surfboards at the background.

MK: Yeah we need to decorate the backroom so.

AO: When was the last time you went surfing?

MK: Actually just two hours ago, yeah, so I’m still like a little bit…

AO: Still having the wavy hair.

MK: Yeah, but feeling fresh.

AO: Good. Before we get into utility and Web3  stuff, just give us a short introduction about your background in Web3 and being a design person.

MK: Yeah so. Well, my background. I have a technical background, so I’ve been studying communications engineering and working in tech for more than 20 years. I’ve been always in the role where I’m trying to explain the technology to other people. And then at some point, I realized that many great technologies don’t get used because usually people who create the technology they are not that good at explaining the technology to the people and bringing it to them.

So that’s why my older company Sangre was founded. To bring this thing to web 2.0 basically. We’re talking about the UX design and service design, making the technology easier to use. And I think we are going through the same cycle in Web3. This technology that enables a lot of things but then I don’t think those who’ve been building it, they are not that great at explaining what it can do and have those applications for the end-users.

So that’s where I’m coming from, and now that Sangre has merged with TX, I’ve been bringing this kind of design view to our processes and how we help our customers. So that’s my background basically, and now I’m in charge of our design operations in TX.

[2:51]

AO: OK, so then we can get right into the topic and just starting more as a warm-up question, what does utility in Web3 mean to you? How do you define that?

MK: Well, utility for me is the usefulness of the technology or the application. Does it solve some problem for the end user? So, we can, for example, say that some people say that Bitcoin doesn’t have utility, but it does have it if you ask from Vietnamese people.

We don’t have access to bank accounts. I think 70% of Vietnamese don’t have access to bank accounts or like traditional finance institutions. For them, there’s a utility in cryptocurrencies. For us, maybe not.

So, for me, the utility is kind of simple. It solves a problem for somebody in the ecosystem. That’s kind of short answer for that. And yeah, solving some task or some problem or whatever, yeah.

AO: You mentioned crypto and with the recent quakes in Web3 and the crypto space, a lot of people have been more and more advocating or saying it’s the death of speculative projects. What’s your take on the current Web3 climate?

MK: Yeah, I think it’s a good question. So, I see it like this. I think it’s going like if you look at it from a really high level. Like you zoom out and you see like the big picture, you can see that, OK. Bitcoin, suddenly there was a time when it went like 10,000 X so the price went up so everybody wanted to kind of copy that, so there was a lot of… It was kind of natural.

Everybody wanted to be the next coin and there was a lot of like these kinds of projects that just put some currency out and see how it goes and people are investing it investing in those projects. And now that you look back, of course, there’s like, like said, is there actually something useful on those projects?

Maybe not. Maybe some of them will survive, so it’s a kind of natural thing what’s been happening. So now that there’s been this crisis. I think the climate has changed so and then if you look at the recent like the FTX, what’s been happening there.

That’s also something when you have these on-ramp-off-ramp services to actual decentralized projects, that’s where like all the shady things are happening because the code is not open. It’s not transparent. We can see in the FTX’s case that it’s really a centralized service. But they were kind of into Web3 ethos, so people were kind of trusting them because yeah, they are Web3 people, so they must be transparent and doing cool stuff, but no, that’s not what happened. So, it kind of gave them, like a really, like they could do whatever they wanted, basically, and that’s kind of the problem.

So, we have to understand what is true Web3 and what is not centralized. So, and I think it’s now it’s time to like, people will start asking questions that “OK can I see the code, is it truly decentralized, if it is, can I check the code and see what’s happening there?” If it’s not truly decentralized, then there need to be other ways of making it transparent. I think services like centralized exchanges need to have they need to be regulated in a different way because it’s not by design transparent. So, that’s what’s been happening basically for me.

AO: So far, we’ve been buying a lot into the ethos and the idealism, and not doing the due diligence work behind that.

MK: Yeah, so I think it’s been like it’s been understandable because it’s been going forward so fast, so people have been kind of… They didn’t have time to ask these questions, and then of course people who come outside and they say OK. Bitcoin value going up, Ethereum value going up, and then how can I invest on those? And the easiest thing to invest on those is to go to a centralized exchange and buy those and then suddenly it’s like then when it’s crashing then everybody is saying “OK Web3 is dead.”

But no, it’s more like these kinds of systems where there’s no transparency, those are dead. Maybe speculative projects that don’t have a real utility, those are dead. Is it a bad thing? I don’t think it’s a bad thing. I think it’s a good thing because there’s a lot of projects that are trying to build through Web3 ecosystem and I think now people start to see those actual projects that are doing something real in the Web3.

So in a sense, I think it had to happen. It’s really natural that it happened.

AO: That’s part of the evolution you need to…

MK: Yeah, that’s part of the evolution and now we are kind of moving to building the actual services. That’s how I see it.

[08:54]

AO: Yeah, so we went through the idealism and the ethos. What do you think are the other things that we haven’t really seen utility come out in Web3 yet? Is it more on the technical limitations that we have at the moment, or maybe it’s just poor UX design? Is there something else that’s kind of limiting why we don’t see that utility side of Web3?

MK: Yeah so. Like I said in the beginning, I think there is already utility. If you are… Like it’s a little bit different thing, for example, us in Finland where we trust the authority, we have access to the bank account. We have quite a good welfare system, so if you are if you are not in the developed country, you are not a sex worker or something, you might say that there’s no utility in Web3 or in cryptocurrencies, but for those people there already is.

Then if we are talking about a kind of mass adoption. Like if we’re talking about like why isn’t there a killer app in Web3 already? Then, I think we are talking about certain limitations that there is in the technology still. When you’re building something decentralized, it’s usually more complex or way more complex.

For me, I see that the infrastructure to build applications on top of hasn’t been there quite ready yet. So, in web 2.0 era you already have like a lot of services to build on top of, so you don’t have to start from really from the scratch. Now we are starting to have that infrastructure in place, so you can actually start developing and designing end-user applications.

So yeah, it’s about the technology, the infrastructure and then also understanding that what sort of applications in the Web3 kind of ecosystem would be those that are the actual killer apps and those that will get mass adoption? So, I really think it’s a combination of those things: UX with the current apps is not there yet, how you use the wallets and stuff. It’s a bit complicated, but we’re getting there, slowly, yeah.

[11:39]

AO:  Where do you think you’ll see the first killer option and the breakthroughs that might get mass adoption in Web3? Where do you think that’s going to happen? What’s the industry or what’s the space?

MK: Well, I think there will be probably… I’m really thinking now, and I hope it’s gonna happen in one of our one of our projects because I’m really excited about those so. I think there’s a few like things that enable something new, completely new, and what Web3 can bring.

One is this what we call decentralized identities or self-sovereign identities. So, people can have their identity with them without the central party, and then they can take their data and their identity from one service to another. If you add to that communications layer, that’s where you’re starting to get something nice and new.

We can see how, for example, Elon Musk is now struggling with Twitter and all this, like verified accounts. It’s actually quite funny to look at how he struggled, like is it paid, is it a notable person, should I trust this, I have this bot problem. And then you look at it and then you look at like this decentralized identities and stuff. Those can easily solve those problems that can solve the bot problem that can solve the people verification problems and everything.

AO: How would that roughly work?

MK: Well, it would roughly work that you could create a service that people could use, for example anonymously, but you could make sure that it’s an actual person using it that it’s not a bot.

So, let’s say you could create a communications platform where people could say that this is only for certain aged people who share the same ideas, and you can make sure that there are only those people attending. Anonymously, no bots or anything. Just real people, but they can reveal whatever they want from themselves. But only the information that is needed to access the, for example, channel, so that would change the game kind of completely. So, I’m seeing the communications and social media will be something that will be probably the killer app will be on that area.

AO: It’s a very different approach.

MK: Yeah it will be a different approach and yeah I don’t know maybe next Twitter, maybe next WhatsApp, maybe next Discord, whatever so.

AO: There’s a lot of ways of going around decentralization. It’s just about which approach you want to take. Is it just the server side or is it going to be with the users and so on?

MK: Yeah, there’s a lot of different ways to do it, and I don’t think we have really understood the what we can do with it? So, I’ve been working in some projects on this area and there’s so much possibilities and we are like maybe we go that route or that and it’s like, OK, let’s try this first. So, it’s like a completely new field and then I’m really excited about that.

AO: So, you mentioned the identity side. What about the data ownership? How big as a thing do you see that in Web3?

MK: Yeah, I think it’s connected to identity, so let’s say I have. We were talking a little bit about this decentralized identity, or self-sovereign identity. So let’s say I carry my identity. Who I am? I’m a 43-year-old man. My name. I have a driver’s license. I can drive a car and a motorcycle and whatever. I have this information with me. So, let’s say I go to a bar. To a restaurant that only people over 18 can go into. So, in the past, like now I need to show my driver… They don’t ask it from me anymore, but let’s say I have to show my driver’s license so they will they see my name, my social security number, but why do they need to see all that? Couldn’t they just see like, yes, he’s over 18. That’s the only information they need to know. They don’t need to know how old I am. They don’t need to know anything else about my background. Just like, OK, he’s over 18, let him in.

So that’s the kind of thing that with the identity. Like this decentralized identity, you can do, and if you add to that your personal data, let’s say your banking data, your retail data, whatever data you have. Your utility bills and stuff like that. And you have complete control on that. And then let’s say you go like buy an insurance. And then the insurance company is like “OK, yeah we have this offer for you, but if you provide us, for example, this and this data”, we can give you a better offer. OK, here you go. And then you give them that data.

So that I’m seeing this kind of thing happening that you have complete control on your data, and you give it to exchange on something: better service, better offers. Not like you give all your data to some centralized body and they do whatever they want with it so.

AO: Your whole family and your everything, history and it’s annoying to always fill that stuff out.

MK: Yeah, so that that’s like the that’s how I see it like the data ownership and the identity ownership forming in the future in the era of Web3. And then there’s the other kind of stuff that, OK, my data alone is worth something, but let’s say million people share all, share their data so we can form data unions and negotiate better terms for that data.

Let’s say somebody wants to use our healthcare data to for our research or something so we could decide as a union that OK, you can use it only for this purpose, or if somebody wants to pay for it, we are in a better position to negotiate how you use this data because we are like million people here. So, these kinds of structures I see happening and I think it’s way better than how it’s currently that you have these central parties that basically, you don’t have the transparency how they’re used. OK, we have the regulations from GDPR and stuff, but still.

AO: You get snapshots, but if you really want to know what’s happening, you don’t really have that.

MK: Yeah, you don’t have that and you can hear the stories. And everybody who works in tech, they know that “OK, yeah, OK, there’s this database. I have access to it. I shouldn’t watch what’s in it.” So there’s always like a ways to go there so. And yeah, we’re people. So, I think by design nobody should have access to your personal data. And it should be yeah like set by design, yeah.

AO: It’s always an opt-out from. It’s never really opt-in.

MK: Yeah, and it’s it should be a negotiation every time somebody wants to use it so. And we have a technology to make it easy. Like it doesn’t have to be nothing else (but) “OK, press the button,” you can see it if I get something in return.

[20:26]

AO: As a designer, you’re helping different companies and startups define their value demand value in their Web3 idea. So, what kind of things are you looking for in the Web3 ideas?

MK: You mean when you’re trying to find the demand and utility or?

AO: Yeah, when you’re trying to define what’s the utility in it, what’s the demand? Why would people go for it? What are the things that you’re kind of looking out for to really make the thing happen?

MK: Yeah, well I think it’s a classic. Product-market-fit kind of thing so. You want to create a service that people want to use so. And it’s a product design process, so you want to… You have some sort of idea of a product and then you expose it early as a prototype and or whatever form to actual end users, and then you get the feedback.

For example, here we have two sizes of glasses, so one user might want more water in it and some users maybe want the nicer design on it. So, then you kind of you change it until people like it. So that’s the approach basically so. It’s not like you do something like for a long time without exposing it. And that’s why I think that’s one of the problems that’s been in the Web3 is that it hasn’t been really that lean or iterative.

So, there’s still this process of like writing the whitepaper and doing like really big design up front and then completing whatever is in the whitepaper, doing like a long project and then you end up having a wrong size of a glass. Yeah, so I would like to turn it around that.

I think we still need whitepapers, but I think you also need to have a process where you actually have room for iteration, and you can expose the product early to the user. So, product-market fit is definitely like one thing that needs to be there and the process to find it. And then what’s great about Web3 is that “OK, now I have now I have the class that people want. Now how do I distribute it?” And that’s where the power of tokenomics comes in the play.

So, “OK, I have a great glass. I have a bunch of people who’ve been already using it and testing it, and they’re super excited about it and I create a tokenomics model where those people who are excited about that glass can distribute it and get compensated, and there’s an incentive, there’s a model that they get paid for it.” So, suddenly you kind of create this sort of system where you have a great product and a great way of distributing it. So that’s the kind of beauty here, so, but what’s been missing? I think it’s the product-market fit.

Now, it’s been proved that the tokenomics models can spread something really fast, but will it have some actual end users? That’s been a little bit unclear.

AO: Like the organic development of it.

MK: Yeah, yeah, so that’s how I see it, so I’m really now focusing also in our project and our process. What we do in our design processes that trying to find the product-market fit, trying to find whatever problem we are trying to solve, and then also thinking about the go-to-market and try to make a tokenomics model that supports that go-to-market, to how to make it then spread fast.

[24:38]

AO: So. what are the things that you’re looking for in the market fit and the tokenomics models that support that development?

MK: Yeah, so I think the key thing is like let’s say you have been having a community that is excited about the product that you just made. So, let’s say they are super excited about the glass. And then you have really like a community that is excited about it, so you want them to also get rewarded for that. So, you create a tokenomics model that incentivize those, that community, to spread the happy news about this new glass that everybody wants and it’s solving like…

AO: It’s solving everything. It’s revolutionary.

MK: Yeah like “the water tastes so good in this glass. You need to try it.” So you want to make those that community that’s been creating the product with you. They are the promoters of that as well because if people start using it, it’s also they get their token value goes up basically. So, you want to create a system or tokenomics model where that really excited community gets rewarded when everybody wants the glass, so that’s then when you have a great product-market-fit and the tokenomics model that supports that. Then it spreads really fast.

[26:20]

AO: What about the governance question? Who actually owns the glass and who makes it better? And who makes the next version of the glass and the limited edition? How does that continue in Web3?

MK: Yeah so OK then we have the production of glasses but there’s no like who owns them. So then there’s a question of DAOs or decentralized autonomous organizations. So, you have the community that have been helping you. They have the token, so then you can create a governance model where let’s say the community can vote for like new features for the glasses. Let’s say, OK, let’s do another one, but a little bit smaller glass next time, because these people want it, and that’s all. So, then they can vote for it. Then, OK, let’s use some of the revenue that we got or money that we have for development.

So, then it’s kind of organized by a DAO. There’s people who have the tokens can vote. Some parts of the decision-making can be in the smart contract, so it can be automated. Not all the questions regarding that need to go through voting. So, there can be some automated mechanisms as well. I can’t think of one in the in the glass, but basically, that’s how it is. So, then you have the organization that basically this DAO that is taking care of it. And usually, the root is that to the DAO is that there may be some company that is actually doing the design and stuff, but slowly they are also handing the product over to the DAO and in the next phases.

AO: Well, that was actually going to be my question is that do you see it as an end result that all Web3 projects end up in some type of DAO?  Or do you think there’s going to be still companies that are kind of controlling it and then the Web3 aspect of it is something completely different?

MK: I think there will be all of these combinations. Not everything can be handled by the DAO, I think. There’s also legal aspects. We’ve been doing projects where you can see that they are operating in some area that is highly regulated, so there needs to be a company entity that is doing, for example, some contracts or having a license to operate in the certain area. So far, the legislation doesn’t support in many countries that DAO can, for example, make contracts. So, you need to have, like the legal entity, which is kind of operating on the basis of legislation in different countries. And then you have the DAO that can have something to say.

So, for example, if you make a glass, there’s probably some regulations it needs to go through some testing before you can sell it. For example, in EU it has to go through some sort of regulation before you can buy it from the store. So probably DAO can’t fill those applications. So, there needs to be a legal entity.

So then we usually talk like, OK what is the role of the legal entity, which can be like a company in EU or LC in the US, and then or even we’ve been talking about in some cases that it can be co-op. That’s really interesting also that there can be a co-op that is governed by DAO. I think co-ops and DAOs are quite close together. And they can make legal contracts. So, that’s the discussion usually. So what’s the legal entity that makes the contracts and then the decision-making and this they happen, they can live like simultaneously and usually are living like, kind of, they operate hand in hand, so then there is this Web3 ethos that you want to decentralize as much as you can but in some cases it doesn’t make sense. And if you want to operate legally, it isn’t even possible.

But we can see that legislation is moving forward. You can already establish DAO plus company combinations that can legally operate. So, we are getting there slowly, but it’s still like kind of gray area so to say.

[32:10]

When you’ve been talking with different companies and startups and then presenting them the idea maybe at some point you need to DAO. How do they react to that?  I guess if people are more used to having control of everything and then you have to kind of give that control away, how do they react to that? Is it clear from the beginning that that’s what you need?

MK: Yeah, so. We’ve been mostly working with startups that are kind of starting from scratch. But when we also been talking with like established companies that want to decentralize their product. I think it’s a little bit more painful discussion with them because they, of course, you put a lot of effort to establish your company, and then you think that “OK I’m like giving up the power of my company to DAO” but then you have to understand that if you already have that you probably have the majority of the tokens, so you have, even in the DAO, you have the majority of the voting and the power.

But then it’s of course like up to the community to decide that. Do they want to be part of the DAO where the power is really centralized? So this is the endless talk that is happening around the project. That is it truly decentralized, who really has the power? Who controls?

AO: It’s a balance.

MK: Yeah, it’s a balance. But that’s really interesting area and I think it’s possible for established companies to have that and it’s not always that they have to give the power off. Like the whole company to the DAO. But they might have like an area in their product catalog, for example, that they want to be decentralized. And it’s all about community building and having people who like your product to kind of have a skin in the game. That’s the thing, so I think we’re gonna see those that you have 100% DAO control, then you have like just like a little bit of community control and then something in between. And then you have a lot of projects that are moving towards that direction and they are trying to kind of navigate the legislation and everything to make it like according to the regulations. And yeah, I’m not a lawyer, but that’s how it is.

And maybe to add to that is also that, from the legislation point of view, the utility is really important aspect here because. If the token doesn’t have the utility, it’s usually seen as a security, so then it’s a financial product rather than a product that has a utility. So, then you will have a different regulation, so this is also why we’re kind of focusing on the utility. Creating products that have utility and then growing the community around that. So that’s also part of that the whole regulation jungle.

AO: Or ecosystem. Whatever we want to use the terms.

MK: Or ecosystem, yeah, whatever you want to create. Is it the jungle or a beach?

AO: Exactly. Thank you, Micke. I think that’s a good place for us to wrap up this podcast.

MK: Yeah, thanks.

AO: And for those who are still listening and want to follow us on other channels as well. Just stick around to our social media channels, you’ll be able to hear the other future podcasts that we have. We’ll be exploring utility in Web3 a lot more in the in the future episodes so just go and follow us on LinkedIn and Twitter especially. And, well, who knows what social media channels are going to be in the future? Maybe Twitter is already outdated by the time this episode comes out?

MK: Yeah, probably.

AO: Thank you and see you next time.

MK: Yep, thanks.