3 Development Directions of Web3 Advertising

Author: Mason Nystrom, investment partner of iant Fund; translation: Jinse Finance xiaozou

The crypto world has been reluctant to embrace advertising as a business model.

Advertising often creates bad associations for many Internet consumers. Web2 tech giants milk user data and give it back in the form of hyper-targeted ads. Additionally, most small, individual creators are unable to turn advertising into a steady stream of income, instead relying on subscriptions to earn online revenue.

But advertising combines a broad product distribution target with a viable revenue stream, making it one of the best monetization models. That’s why social networks and search networks are using ads to subsidize their platforms, and top content creators are using ads instead of subscriptions on platforms like Substack and Spotify.

The openness of encryption protocols breaks traditional platform business models that rely on siled data and specific users. The core elements of the Web3 advertising stack have emerged, including advertisers, advertising protocols, marketplaces, and applications. Crypto platforms are looking for a viable business model while advertising sits by, patiently waiting to be adopted.

But **Web3 ads don’t have to emulate Web2 ads. **While all components of the Web3 ad stack are important to the future of encrypted native advertising, let’s focus on the most fundamental part of the ad stack, which is the ad itself.

1. Emerging Web3 advertising model

The Web3 advertising landscape will be defined by the following three emerging models:

On-chain advertising: NFT advertising, NFT referral links, and NFT as ownership of advertising space.

· Token Management Ads: Tokens that manage key assets on the platform (i.e. homepage content, storefronts, and NFT issuance).

Hybrid advertising: traditional off-chain advertising that leverages on-chain protocols or attribution engines to connect on-chain and off-chain data.

(1) On-chain advertising: NFT advertising and affiliate programs

One of the first on-chain ads was NFT data aggregation platform CryptoSlam, which experimented with using NFTs to grant ownership of banner ad slots on its homepage. During several weeks in January, each NFT ad corresponded to a banner ad for a specific day and could only be redeemed through CryptoSlam, allowing the NFT aggregator platform to enforce content curation.

By further converting ads into NFTs, CryptoSlam can create a secondary market for its ads, turning them into a valuable asset that provides ongoing royalty income. Importantly, collecting advertising NFT royalties will be very simple, because the platform or advertising agreement can force buyers to pay royalties to obtain advertising utility.

In addition to NFT advertising, encryption technology can also facilitate more efficient and dynamic affiliate programs. Affiliate networks can utilize tools such as ShareMint or Fuul to provide on-chain referral links, dynamically reward referrers, employ token gating for targeted reward programs, and combine off-chain data with on-chain operations and conversions. Sound.xyz is a music NFT minting and marketplace protocol with a "curator rewards" mechanism; fans earn 5% of the main revenue for their referral links and playlists. As more and more off-chain operations become on-chain experiences, affiliate networks and curators who create value in the product marketing life cycle will have the potential to receive economic incentives and rewards.

(2) Token Management Ads

On social networks, companies spend money to get more attention. In Web2, paying Google for advertising is crucial to allowing a site to rank above other sites in search results. Crypto platforms can also utilize tokens as a tool for managing attention.

NFT art platform SuperRare utilizes its RARE token for governance in several ways. First, SuperRare conducts Space competitions using token holders' management rights (i.e., voting rights), which determine which entities or individuals can create SuperRare Space storefronts. In SuperRare, the gallery is a valuable digital asset that can effectively play the role of advertising, because the head space can get more views and sales.

Management can go a step further. Imagine if you could use tokens to control which storefront appeared first on the front page of your website/marketplace/social app? In this model, governance tokens act like a sort of liquid advertisement, with the added benefit that token holders receive a portion of the proceeds from storefront and SuperRare protocol sales. Governance allows tokens to gain additional value and provide utility to platform stakeholders. Importantly, it also allows marketplace applications (such as SuperRare.com) to continue driving the value of the underlying protocol token (RARE).

(3) Mixed advertising agreement

Several companies, including Pindl, Wav3s, MadFi, Slise, and Hypelab, are building protocols focused on user activity attribution. That is, they connect a user's off-chain and on-chain identities. For example, if an NFT marketplace wants to know if its marketing campaign is working, the marketplace could use an attribution protocol to track the activity of an individual who clicks on a referral link or Twitter ad to know if that person actually visited their protocol, is in the marketplace The purchase of assets on the Internet has achieved conversion.

Advertising will naturally fit into the new protocol. For example, the advertising protocol Wav3s is combined with Lens to directly enter the open social graph and promote the realization of creator advertisements. Wav3s allow creators to pay people who promote their content (like retweets, etc.). More importantly, it shares a certain percentage with Lens applications such as Phaver, Orb, and Lenster according to the number of promotions generated by each application. Platforms such as Layer3 similarly offer new forms of user acquisition; companies can advertise and reward users on the platform if they complete certain on-chain actions.

**2. How will Web3 advertising develop? **

Very few Web3 companies or protocols embrace advertising as a business model, which leaves a lot of unanswered questions about what goes next for Web3 advertising:

· Will ads remain off-chain, or will they come on-chain as NFTs?

Whether distribution control platforms (e.g. marketplaces, aggregation platforms, social media platforms) still control their attribution engines, or does the open and permissionless nature of Web3 data allow third-party attribution protocols to provide more robust activity tracking and user analysis function?

What are the unique ways Web3 can gain attention?

My hypothesis is that while the prospect of a common protocol for cross-platform ad serving is exciting, it is also the least likely model to dominate without distribution in the long run.

Even in a world of open source data, apps or marketplaces that control user distribution and attention are likely to try to control their ad experience. This could be because they want to moderate content, improve click-through rates, or use off-chain data more effectively to precisely target customers in their applications. Attribution protocols will still have a place in crypto, but I think they could be swallowed by the leading crypto social platforms, just like Google did with AdSense.

The difference this time is that the value of attribution engines is obvious. AdSense was sold for $102 million, and the deals would be 10 times more effective.

Under this assumption, I am most interested in on-chain advertising platforms—that is, platforms that use advertising as an asset class—and applications that leverage new advertising models.