Web3 is, without a shadow of a doubt, the future of the internet. Its growing popularity is fueled by its potential to disrupt the oligarchy that is Web 2. It’s no wonder that, as of 2025, a staggering $112 billion has already been invested in this sector.
That said, as promising as this technology is, nearly 90% of Web3 startups fail to survive past the first five years of their inception. It is no wonder that Statista has reworked its Web3 market size projections for 2030 from $1,235 billion in 2022 down to $943 billion in 2023.
But why are Web3 startups failing? The short answer: success in this niche requires more than just a blockchain application. If you are a Web3 startup founder or an investor, it’s crucial to understand the key factors behind the high Web3 failure rates, and this is exactly what this blog is all about.
Why Web3 Startups Fail: The Top Mistakes
As mentioned earlier, Web3’s high failure rate stems from the misconception that founders have that being “blockchain-based” is enough for their startup to make it big.
You must know that in the context of the most common Web3 startup mistakes, that statement barely scratches the surface. With that said, let’s look at the other factors that have led many startups to falter in this domain.
Lack Of Real-World Use Cases
Kidlin’s Law states, “If you write the problem down clearly, then the matter is half solved.” A significant mistake among web3 startups is bypassing the crucial “needs assessment” phase in product development. This oversight often leads to an overemphasis on creating web3-based solutions without fully understanding market demands.
Consider the case of Flowcarbon, a Web3 startup that aimed to tokenize carbon credits. Despite securing $70 million in funding, the company faced significant challenges in establishing a sustainable market presence. Why? Resistance from carbon registries and the fact that tokenizing carbon credits has little in the way of having a real-world impact on climate change.
On the contrary, Web3 startups like FileCoin (which provides decentralized storage) and Uniswap (a decentralized exchange) that offer real-world value have endured.
Incorrect Web3 Startup Marketing Strategies
Another significant point of failure is the failure to understand the nuances between traditional marketing and Web3 startup marketing.
In Web2 marketing, mass marketing campaigns get the job done (of course, there is strategy involved here, too), but things are different when it comes to Web3 startups.
Here, the primary focus must be community building by actively engaging early adopters and developers. Take the example of Shardeum, a Layer-1 blockchain that invites everyone onto their Discord to be a part of the community right from their homepage.
In addition, Web3 is a relatively new and technical concept, so your marketing creatives should be developed in a manner that can articulate your startup’s vision to a non-technical crowd.
Asset Tokenization Hurdles
Poor asset tokenization is another common answer to the question “Why do Web3s fail”?
For the uninitiated, tokenization in Web3 is a concept that converts the rights of real-world assets, such as real estate, art, or intellectual property, into digital tokens. The goal is to enable fractional ownership and the ability to trade and transfer the same via the blockchain, which makes the process secure and transparent.
That said, regulations surrounding digital asset ownership and trading are strict, but because this is a new concept, they are not standardized. Despite this, any compliance lapse can shut down projects altogether.
Then, there is the issue of poorly designed tokenization models. Some startups oversaturate the market with tokens without providing enough value to back them. This, in turn, dilutes investor confidence, which eventually leads to their crash.
Unsustainable Tokenomics & Crypto Crashes
One of the most detrimental factors leading to Web3 startup failures is poorly designed tokenomics (the economic model behind a token, that is, the supply, distribution, incentives, and overall utility). Startups often launch tokens purely to raise funds without considering long-term viability.
How To Avoid The Above Mistakes?
By now, you should have a good understanding of what causes most Web3 startups to fail. Congratulations, most of the problems are solved.
Now, let’s look at a few strategies that will help you avoid the above pitfalls altogether.
Start with a Real-World Problem
As mentioned earlier, the lack of real-world use cases is one of the leading causes of Web3 startup failures. Ideally, you should build your business’s foundation on this. One possible approach is to look at the internet’s history and try to address an untapped niche.
For example, Web 1 lacked avenues for user engagement and content creation, which paved the way for Web 2, which introduced dynamic, user-generated content and social media platforms.
Right now, the biggest pain points of this internet era are the consolidation of power between a handful of tech giants and data privacy. So, work on a web3 concept that addresses these shortcomings.
Focus on Community First
Web3 functions just like its “open-source” counterpart of the Web2 era that thrived on active participation and co-creation from their communities. Think back on what Shardeum did by building a robust community:
- It gains valuable insights from a vast talent pool (rather than being limited to a few in-house experts).
- Its community automatically becomes its biggest brand advocates, and as you know, nothing beats word-of-mouth marketing.
When you have a community-driven model, you ensure that your startup evolves to address the previous point – solving a real-world problem that aligns with your community’s needs.
Design Sustainable Tokenomics
Sustainable tokenomics should be the next area of focus to succeed as a Web3 startup. Your tokens should incentivize desired behaviors without leading to inflation or devaluation.
Here are some dos and don’ts on how to go about this:
- Understand the Fundamentals of Tokenomics: Tokenomics is the economic model that governs your project’s token. They are the financial backbone of your project, so every aspect of your model should align with your startup’s goals.
- Incentivize Long-Term Participation: Implement staking rewards, governance tokens, and time-locked tokens to encourage holders to remain invested in your ecosystem.
- Avoid Over-Tokenization: Do not issue without a clear utility. Conduct market research to ensure demand exists for your token’s use case.
Stay Compliant
Web3 regulations include everything from anti-money laundering (AML) laws to know-your-customer (KYC) requirements and multiple regulations. These can be universal or region-specific.
For example, Web3 startups in the US have to adhere to regulations put forth by the US Securities and Exchange Commission (SEC) and the US Financial Crimes Enforcement Network (FinCEN), while Web3 startups in India do not.
The best way to avoid any regulatory pitfalls is to rope in the experts. Think of compliance as a means of gaining a competitive advantage by fostering transparency and building trust with all parties involved in your startup.
Get Your Web3 Startup up and Running with Kreatoverse
The Web3 universe is no doubt a gold mine of possibilities; however, to succeed here, you must think beyond blockchain. Remember, the key lies in delivering genuine value while adapting to the dynamic nature of this space.
If you are a Web3 startup founder dealing with some of the above issues or are looking to kick-start one, we at Kreatoverse can be a valuable asset to you. We specialize in helping founders like you navigate the complexities of Web3 with confidence.
Get in touch with us to find out how.
FAQs
1. What are the top mistakes Web3 startups typically make?
Web3 startups often stumble due to a lack of real-world use cases, poor tokenomics, a lack of emphasis on building a community, and the wrong marketing strategies for this specific niche. Ignoring compliance is a top factor, too.
2. What is the failure rate of Web3 startups?
The failure rate of Web3 startups is alarmingly high: nearly 90% of them fail to survive beyond their first five years.
3. What is the #1 reason why startups fail?
The primary reason Web3 startups fail is that they are developed merely to capitalize on the allure of Web3 technologies without considering the fact that there is an existing market need for the product.
