Crypto — A design thinking framework for protocol design and investing
Part 2
Quick recap
Welcome to part 2 of my mini series on applying design thinking principles to building and investing in crypto protocols. If you haven’t read part 1 then please do so here
At the end of this series you should be able to understand the overall process and consider how it might apply to your next startup, specific feature or your next investment in the crypto space.
In part 1, we gave context to:
- What is design thinking?
- Why problem solving matters in the context of startups
- Explanation of why finding the right problem matters
- Snapshot of the design thinking process
In part 2 below we will dive into the the first two steps of the design thinking process with actionable advice and crypto specific examples.
The process
There are various flavours of the design thinking process however most follow the 5 core steps shown above. Core to design thinking is that one must always start with understanding, defining and validating the problem you aim to solve before a solution of any kind is explored. Let’s dive in!
1. Empathize
Empathizing is the process by which we aim to understand our target users and their problems. We can break this section down into a number of useful exercises to give us the best chance of understanding our users:
Painstorming
Think brainstorming but instead of focusing on solutions, in painstorming you try to post it note down as many pain points or problems as you can. It’s an exercise in quantity over quality at this point. The exercise works best with a large whiteboard (physical or digital) and individual team members working independently for a set period of time to come up with as many problem statements as possible. There a templates to structure these sessions but I’ve personally had more success running these sessions more organically using post it notes as it forces brevity.
Crypto examples
- Seed phrases are complex and I worry about losing my private keys
- Converting my fiat currency into crypto is complex, I don’t know where to start?
- Gas fees are prohibitive to me as a developer/user
- The cost to set up and manage a fund is $20m +
- My country’s currency is unstable and accessing US Dollars is impossible for me
By jotting down problems, you may notice how various crypto projects are tackling them already. Whether it’s Argent abstracting away seed phrases or Enzyme and dHedge democratising fund management, successful solutions focus on the most painful customer problems. It’s clear that when we analyse markets through a problem lens and consider the global macro economic and social environment why the demand for stablecoins i.e. synthetic US Dollar exposure has reached over $38bn on Ethereum.
Stakeholder mapping
Who are the core stakeholders I need to persuade and/or be mindful of when building and selling my product. This exercise is best carried out using post it notes and a timer. Again, it is an exercise in quantity of quality.
Crypto example
If we contextualise the above looking at a DeFi protocol such as Aave, we would map core stakeholders as liquidity providers (LPs’) and borrowers. Also, we would map developers and other crypto projects looking to build on top or integrate with Aave on the stakeholder map.
User interviews
The number one reason startups fail is because of the lack of demand for the product/service. Yet, the biggest mistake I see time and time again is teams who spend lots of time and money building out a new startup or a specific feature without first speaking to their users. The earlier in the process you speak to users the better. Below is an example script that can be applied to most scenarios:
- Tell me the last time you tried to solve [problem]
- What was the hardest/most painful part of the process?
- Why was this hard?
- How do you solve this problem now?
- Have you paid for products/solutions to this problem?
- [If yes] why did these not solve your problem effectively?
Crypto example
I’ll use the above framework and put myself in the users situation with answers below in a situation for a user trying to buy crypto for the first time.
- My friends are really into crypto so I’m really keen to get some myself. They set up a wallet for me and everything but I just find it all so confusing, there’s so many tokens and I don’t know what any of them mean or how to get them in my wallet.
- The hardest part is just converting my normal $ to crypto. I know I can use an exchange but I even find that confusing as the on-boarding process takes ages and I just want to put in $100 or so to play around with.
- It was hard because for the sake of a small amount of money, I don’t want to have to setup an exchange account and I heard it can take days and it’s just not worth it for me to be honest.
- I found that my software wallet have integrated a third party provider that links to my bank but it’s not available in my country so it just feels like another barrier to getting into the crypto world. In the end, I asked my friend to buy the crypto for me and send it to my wallet.
- I paid my friend a fee to send me crypto in addition the amount they sent me. It’s a good workaround but I can’t keep relying on them!
- It solved my problem in the short term but long term it’s not sustainable!
Takeaways from the answers:
If we drill into the answers above, we can see that this user finds the friction of converting their fiat currency into crypto a painful problem. Importantly they have tried to solve the problem in a number of ways, both through trying to use an exchange but also through finding alternative ways e.g. built in integrations through their online wallet. Another important indicator that this is a problem worth solving is the fact they have paid in some way to solve it as can be seen in the transaction involving their friend. This payment further solidifies that this is a painful problem that the user will pay for a solution. If through other user interviews we establish a similar theme in the fiat to crypto on-ramp then this gives us validation that there is a good opportunity to solve for this problem through addressing the pain points above. Ramp have built a useful solution to this problem as an example of a company innovating around this specific problem.
Key tips:
- Focus on past actions and behaviours rather than future potential scenarios. No ‘would you buy….’
- Focus on problems, don’t talk about solutions
- Keep asking ‘why’ until you drill down to the root of the problem
User personas
Building out user personas is a crucial exercise in the design thinking process. Personas are fictitious representations of users of our product/service and the user interviews are a core part of building out our user personas. As with all the other artefacts during this process, personas are a living document that will be constantly updated. To build up accurate personas requires a mix of both quantitative and qualitative research such as:
- Ethnographic research
- User interviews
- Stakeholder mapping
- Statistical analysis (primary and/or secondary)
Crypto example
Let’s use one of the pain points mentioned earlier:
“The cost to set up and manage a crypto fund is $20m +”
To start a fund today would require c.$20/30 million in LP investment as well as a set-up cost and yearly operating costs of $100,000 +. That’s not accounting for the additional cost and regulatory burden for dealing with crypto assets. Further, a traditional structure would see a ratio of 5 back office staff (compliance etc..) to 1 investment professional. This cost structure means that the opportunity to set up and manage a fund is available only to a few elite people. Platforms such as dHedge and Enzyme are democratising access to fund management enabling funds to bet set up for at max a few hundred dollars. Their persona then would likely have the following characteristics:
- Crypto native and tech savvy
- Invested personally in the crypto markets for 3+ years
- Traditional financial markets experience
- 18–35 year of age
- Has both the background and experience but doesn’t have the funding or network to raise a traditional fund
- Likes the fact that their track record is fully auditable on the blockchain and plans to use their performance to have friends or colleagues invest through the platform as a ‘test’ fund
Customer journey mapping
Customer journey maps are an excellent resource for reflecting on the lifecycle of use of a product/service from a customers perspective. They take many forms but ultimately they are a visual diagram of the sequential journey that the user takes when interacting with your product/service. Importantly each part of the journey is graded based on how positive or negative that touch point is for the user. The example above is a Starbucks customer’s journey buying a coffee. Even a simple process as the one above can be broken down to understand which parts of the process can be improved upon. The more ‘pain’ in the journey, the further away from the baseline.
Crypto example
Having tried to on-board a number of friends recently, even the process of downloading a software wallet and buying and/or sending crypto assets to the wallet is a customer journey filled with friction. Let’s look at a very simple wallet setup user journey below (I’ll purposely skip a few steps) that I’ll mark from 1–10 based on pain for the user with 10 being painful, 5 as the baseline and 1 for feelings of euphoria.
- Friend advises you to download a software wallet (5)
- You google the specific brand and are presented with a few different adverts and websites (5)
- You’ve heard about phising scams so you’re worried (8)
- You ask your friend to send you the right website to download the wallet (5)
- You click download and you then ‘create new wallet’ (5)
- You’re now presented with a ‘Secret Backup Phrase’ with the warning words ‘anyone with this phrase can take your ether forever’. You haven’t even bought crypto yet and you’re already very worried (9)
- You reveal the secret backup phrase and are told to write it down on a piece of paper. This all feels very archaic to the applications you are used to downloading. (8)
- ………
I won’t carry on further but as you can see from the above we can quickly pinpoint parts of the journey which are most painful for our users and therefore opportunities to solve these problems and either attract new users or help retain our current users. Software wallets and browser plugins have been pivotal developments for the crypto industry but Argent saw this painful part of the user journey as an opportunity to solve for. Their app can be downloaded directly from the app store, uses no seed phrases and can be backed up by a trusted guardian such as a family member or friend.
As can be seen from the various activities and exercises from the ‘emphathize’ section, we have spent a lot of time trying to understand our user(s) and their pain points. Our next step is to take all of that research and begin refining and defining the specific problem that we want to tackle.
2. Define
We spent the empathize section really trying to understand the various problems our users face and spent lots of time speaking to them. With all that good research we are now in a great position to hone in and define a specific problem we want to focus on on solving.
How might we problem statement
To focus in on the specific problem we want to solve, we use a technique called ‘How might we’ (HMW) as follows:
“How might be help [target users] solve [problem x]”
The more prescriptive and detail you can provide here the better.
Crypto example
“How might we help [corporate treasurers] solve [allocating capital in the current economic climate?]”.
The above is a useful starting point but I think we can do better by adding in more detail:
“How might we help [risk averse corporate treasures of S&P 500 companies with balance sheets greater than $500 million] solve [allocating cash on their balance sheets that would traditionally sit in money market funds in the current economic environment of unprecedented monetary easing]”
The more context and colour you can provide around the problem the better. As can be seen above, we have a specific persona and therefore our user interviews would be focused on treasurers within these companies to understand their current problems during the empathize process.
I hope you enjoyed part 2 of the 3 part mini series into applying design thinking to crypto. The final section will be released next week where I’ll finish applying the three remaining steps of the design thinking process concluding with some key takeaways for your current or next crypto startup or investment.
If you are a builder or investor in the crypto space and want to discuss any of the above and how it can be incorporated into your next project or crypto investment please feel free to reach out to me directly via my Twitter: Native_0x
