Why Most Web3 Projects Struggle with User Retention and Engagement

Web3 projects face major challenges in keeping users engaged. Despite spending up to 40% of their budgets on marketing, retention rates often drop below 30% after a few months. Here’s why users leave:

Key Issues:

• Complex Onboarding: Confusing terms like "seed phrases" and "gas fees" overwhelm new users.
• Poor User Experience: Wallet setup takes too long, interfaces are clunky, and transactions are slow and expensive.
• Security Concerns: $14 billion was stolen in Web3-related crimes in 2024, eroding trust.
• Unclear Benefits: Many projects fail to show practical value, focusing on speculation instead.

The gap between user expectations and reality continues to widen—leaving many Web3 projects in a constant battle against churn.

1. Too Complex for New Users

Web3's technology can feel overwhelming, especially for newcomers. Data reveals that many first-time NFT users drop out due to the steep learning curve involved ^[2]. Even though the Web3 market is expected to grow by 44.9% between 2022 and 2030 ^[4], this complexity remains a major hurdle to mainstream adoption.

Technical Language Barriers

Terms like seed phrase, gas fees, and smart contracts often leave new users puzzled. Without clear explanations, these concepts can make onboarding feel like a daunting task ^[5]. Here are some common challenges users face:

Web2 vs Web3 User Experience

The user experience in Web3 often falls short when compared to the simplicity of Web2 platforms.

"Education is really important. Diversity breeds innovation, and we need more innovation in the space." – Sandy Carter, COO, Unstoppable Domains ^[3]

Some platforms, like Magic, are bridging this gap by allowing users to access DApps through email or social media accounts, removing the need for direct cryptographic key management ^[2].

Here’s how Web3 stacks up against Web2 in key areas:

To tackle these issues, some Web3 applications are adopting Web2-style interfaces, simplifying blockchain processes with user-friendly designs like single-button actions ^[2]. Making these changes is crucial for improving user engagement and retention in the Web3 space.

2. Poor User Experience

Web3 platforms often face a major hurdle: their complexity makes it hard to keep users engaged. In fact, retention rates drop to less than 1% after just 30 days ^[7]. This problem is tied to issues like wallet setup, transaction processing, and confusing interfaces.

Wallet Setup Problems

Setting up a wallet is a major pain point. While Web2 platforms let users get started in under five minutes, Web3 setup can take 20–30 minutes ^[7]. The process is packed with tricky steps that frustrate users:

"Users without a proper background can often get confused by the overcomplexity of blockchain terminology like - swap, gas, consensus mechanism, private key, etc."
– Tim Strebkov, Founder and Design Lead, Pixels and Sense ^[6]

Cost and Speed Issues

Once wallets are set up, users face another challenge: high transaction costs and slow speeds. Web3 transactions are far from the instant payments people are used to in Web2. Gas fees are unpredictable, network congestion causes delays, and transaction times lack transparency. A report from Trust's AA Wallet Team shows that over 60% of transactions on Trust Swift relied on non-native tokens to avoid gas fee complications ^[8].

Confusing Interfaces

Web3 interfaces add yet another layer of difficulty. Only 25% of users feel confident navigating decentralized applications ^[9]. Compared to the smooth and user-friendly designs of Web2 platforms, Web3 apps often feel clunky:

"Navigating decentralised applications can be complicated and confusing for those who are not technologically savvy... User interfaces often lack the intuitive design found in traditional apps, which can be a significant barrier to widespread adoption."
– Donna Chen, Co-founder & COO @KICKWEB3 ^[10]

To tackle these issues, platforms like Safe are introducing wallet-sponsored payments. This approach is making a difference - over 90% of transactions on certain L2 networks now use this simplified method ^[8].

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3. Security and Trust Issues

Security concerns are a major barrier to user confidence and retention in Web3, just like poor user experience. With over $14 billion stolen in Web3-related crimes in 2024 - double the amount lost to all non-crypto cybercrime ^[13] - users have every reason to be cautious. These issues make it tough to keep users engaged over time.

Common Scams and Fraud

Web3 is full of risks, with one in ten decentralized applications (dApps) potentially being malicious ^[13]. Some recent incidents highlight just how serious these threats are:

Lack of Consumer Protection

The absence of consumer protections in Web3 adds to trust issues. Over 200 million scam addresses have been identified in the ecosystem ^[11], yet users often have nowhere to turn when things go wrong. Unlike traditional finance, Web3 lacks fraud prevention, transaction reversals, dispute resolution, and account recovery. This leaves users exposed and forces stakeholders to look for alternative solutions.

Identifying Safe Projects

While blockchain technology is transparent, that doesn’t mean every project is trustworthy. Security firm Blockaid, for instance, scanned 450 million transactions, stopped 1.2 million malicious ones, and safeguarded over $500 million in user funds ^[13]. This shows how hard it can be to judge a project's legitimacy, even in an open ecosystem.

To address these challenges, some platforms are stepping up their security game by:

• Performing regular smart contract audits to find vulnerabilities

• Using multi-signature wallets to protect assets

• Employing real-time transaction scanning to catch fraudulent activity

• Educating users to help them recognize scams

Even with these measures, Web3 remains a tough environment for building trust and retaining users over the long term.

4. Unclear Benefits

Web3 projects often struggle to demonstrate clear value, which directly impacts user engagement and retention. This lack of clarity costs these projects billions of dollars every year, worsening already existing challenges with keeping users interested.

Limited Practical Use Cases

Many Web3 initiatives prioritize speculation over solving real-world problems. This approach leads to low engagement. For instance, trading platforms report retention rates below 30% after just a few months ^[1]. Token reward programs also tend to lose users once the incentives diminish. A standout example is MetaLend, which has attracted over $135 million in gaming tokens by tying its services to practical gaming economies ^[18].

Ineffective Communication of Benefits

Despite some projects allocating up to 40% of their capital on marketing ^[1], they often fail to connect with audiences beyond the crypto-savvy. Common issues include:

• High user acquisition costs, reaching up to $700 per user ^[1].

• Overemphasis on technical features, while neglecting to highlight practical benefits.

As Jason Choi puts it:

"Being decentralized / having a token does not absolve you from the requirements beset upon scaling a product people actually want to use." – Jason Choi ^[17]

Nike's .Swoosh platform provides a counterexample by effectively communicating benefits. It allows customers to share virtual apparel designs and participate in product launches, making Web3 technology feel more relatable and accessible ^[16].

The Gap Between Experts and Everyday Users

Another major hurdle is the disconnect between crypto experts and mainstream users. This divide slows adoption in a market expected to grow to $1.4 trillion by 2030 ^[15].

For example, JPMorgan Chase's Project Guardian focuses on cross-border blockchain transactions ^[16], but its relevance to everyday users remains limited. On the other hand, Starbucks Odyssey successfully bridges this gap. As Brady Brewer explains:

"Starbucks Rewards members are some of our most loyal and engaged customers, and Starbucks Odyssey is our next big innovation in loyalty to recognize, surprise and delight them." ^[19]

5. Solutions for Better Retention

Web3 projects are adopting specific strategies to improve user retention and engagement.

Simplifying User Onboarding

Web3 platforms can feel intimidating for newcomers due to their complexity. To address this, many are introducing smoother onboarding processes that minimize barriers. Some key features include:

For example, email-based wallet solutions allow users to access platforms without managing cryptographic keys directly ^[2].

Once users are onboarded, keeping them engaged often relies on rewarding their activity.

Reward Programs That Work

Blockchain is reshaping loyalty programs by adding more value and making them more engaging. With around $100 billion in unclaimed loyalty points ^[20], there's a big opportunity to innovate. Take Starbucks Odyssey as an example - it gamifies the experience with "journeys" that reward users with digital stamps and points. These types of programs not only encourage participation but also strengthen the relationship between the platform and its users.

Establishing User Trust

Beyond easy access and rewards, trust is essential for retaining users over time. Here’s how projects are focusing on trust-building:

• Transparent Communication: Platforms like Spiking keep users informed by sharing real-time blockchain data and regular updates ^[21].

• Strong Security Protocols: Clear guidelines for content usage, asset protection, and transparent third-party agreements help protect users ^[22].

• Community Engagement: Sharing educational content, market insights, and project updates helps create meaningful connections.

"Personal brand is about building connections, and the best approach is to simply be open and sincere." – Gracy Chen of Bitget ^[21]

Engagement & Retention Lessons from Web3

Conclusion: Fixing Web3's User Problem

Key Takeaways

Web3 projects are grappling with major hurdles. Retention rates often drop below 30% within a few months, and startups are spending as much as 40% of their budgets on marketing. The cost to acquire a single user? A hefty $500 to $700 ^[1].

Here's a breakdown of the main challenges and possible solutions:

These issues highlight the need for a fresh approach to keep users engaged and invested in Web3.

Steps to Move Forward

To tackle these obstacles, Web3 needs a user-first strategy:

1. Focus on education: Explain the benefits of Web3 in a way that resonates with users' everyday experiences ^[1].

2. Build trust: As PwC emphasizes:

   "Trust in web3 is crucially important, because if a breach occurs, both the potential reputational hit and the costs of reengineering your web3 environment can be enormous" ^[22].

3. Offer lasting value: Move beyond short-term promotions by creating loyalty programs and other incentives that offer real, long-term benefits.