WAO.
If you’re on CT, you would’ve seen the stream of handles with 🎒 emoji, announcements from projects building xNFTs, people writing scripts to crack an invite code to Backpack 🤯, people auctioning away their invite, and of-course the calls of “WAO” (We are on).
You may be wondering why there’s so much excitement, hype and love from the ecosystem even before a product is launched, especially in a bear market. It is likely for two reasons, firstly the idea itself is incredibly simple yet powerful once you get it (which is hopefully through the course of reading this essay). Secondly, because the team behind the project has built Anchor - the most used framework for building on Solana. Building a new protocol is hard. It requires other participants to make a leap of faith, adopt it and contribute to its success before product-market-fit is established. It feels like a perfect match - a team that is immersed into the community building a product at its frontier.
After running a private developer focused alpha for the last few months, they’ve just opened up limited access to the Backpack wallet. You still need developer access if you want to try out xNFTs. The team recently announced that they’ve raised a $20m round led by FTX & Jump Crypto.
We got early access not only to Backpack but also to try out some xNFTs. Here’s what the current xNFT library looks like.
It is a familiar consumer experience, yet one that feels novel to web3 - you click on an app, it gets installed into your device, and you can start using it. But the app is a xNFT and the device is a Backpack.
At the core, xNFTs and Backpack promise three things:
A simplified development experience for building crypto apps, particularly on mobile.
Compounding distribution through the Backpack app
A playground to build rich, novel crypto-native end user experiences
In this essay, we’re going to make the case for why contributors and projects should care about this. If you’re a project, this is a great opportunity for unlocking mass distribution and mobile-native experiences. If you’re a contributor, you want to set yourself up for the upcoming demand for talent by developing these skills and a public portfolio early. Head over to the RFP section at the end for ways to get started.
Thanks to Tristan, Akshay, Shek, Armani, Anoushk, Ujjwal & Pragya for inputs to this essay.
Let’s dive in.
Understanding Superapps
Let’s take a detour to understand what super apps are, why companies/brands like to build on top of them, etc. Those of us in Asia are already familiar with this….
The story goes like this : an app achieves scale in a primary business, has a network of customers and service partners locked in, deploys a suite of complementary products and/or a platform allowing others to build on top of it.
Most prominent examples of this are WeChat & Alipay (China) starting with messaging, GoJek (Indonesia) & Grab (Malaysia/Singapore) starting out as taxi services, PhonePe & PayTM (India) starting out as a payment app but eventually expanding horizontally and launching developer platforms.
There are two reasons why brands were tripping over themselves to build on top of these super apps : better distribution compared to existing alternatives & a simplified development experience. Let’s understand each of these.
Better distribution. The google & apple app store is a noisy place. Thousands of apps get listed, there are limited options to boost discovery & ASO is a black-box. Super apps promise curation to a selected set of partners. Each partnership is forged as a BD deal where the estimated revenue and traction is a meaningful input factor in deciding how much visibility your app and app category gets.
Simplified Development. Super app platforms abstract out login, payment methods and other boilerplate functionalities. This improves user experience for the underlying apps because typically users won’t already have an account or payment method setup with them.
Here’s a quick look at the purchase journey on PhonePe. Notice the boilerplate pop-ups for login & payment.
Additionally, super apps can also offer better cross-targeting of complementary products & services. If you book a flight to Delhi on PhonePe, it can pass on that “lead” to taxi and hotel services in Delhi. They can also provide a purchase based ad targeting service instead of search or persona based. This often provides better RoI than generic google and facebook ads.
Who loves super apps?
Customers on low-end devices with limited storage and entry level specs. This is the vast majority of mobile users.
Smaller brands who struggle to build sticky apps of their own. No one wants to login and maintain payment details with apps of low-frequency, niche brands. Their apps typically get uninstalled really quickly.
Larger brands use these as acquisition channels while retaining native android/iOS apps of their own.
You could think of Backpack as the crypto super app. This is not entirely accurate- we’ll talk about why in the next section- but it is a useful analogy. Backpack will abstract out three complexities for developers & users:
Technical complexity of connecting with the blockchain. Backpack provides an execution environment that allows developers to directly connect with the underlying blockchain without needing to manage expensive infra (e.g. RPC nodes)
Compliance overhead with existing app stores. Once the Backpack iOS & Android app ships, as a xNFT dev you can ship over the air updates to your app without worrying about approvals.
Using a wallet to store, move assets & sign txns. Backpack provides a single wallet interface functionality across all xNFTs
Here’s an example of a user flow on xNFTs via Backpack. You can analyse NFT collections, volumes, prices, etc on Tiexo & seamlessly execute a purchase through magic eden - from within the Tiexo xNFT. Before this, it just wasn't possible to build these kinds of seamless experiences on mobile.
So, a useful starting point is to think of Backpack as a crypto super app & xNFTs as mini-apps within that. This is a useful analogy and starting point, but not entirely accurate. Backpack doesn’t lock-in developers like platforms and xNFTs have direct p2p interactions, neither of which is possible in super apps. More on this in the next sections.
Wallets are features, not apps
To understand what is special about Backpack, you first need to understand the constraints with building great crypto mobile apps.
If you’ve looked around, you’ve probably seen that we don’t have too many crypto/web3 consumer mobile apps today. This is a key missing link in taking web3 mainstream and achieving mass adoption. We’ve written about the importance of building for mobile in previous essays on the Solana mobile stack & Stop building for CT.
To understand why we ended up with wallets as gatekeepers of blockchains, you need to understand the concept of path dependency. Bitcoin was designed to be a decentralised payment system. Ethereum building a computation platform inspired by Bitcoin. DeFi summer was the first real spotlight moment for crypto. All of this required buying/selling/lending of tokens. This made wallets like Metamask the most popular crypto apps. Similarly on Solana, during peak bull market most people were yield farming or NFT flipping - making Phantom the top app.
Today’s wallet UX will be pushed to a breaking point by the next gen of consumer apps. Over the last five years the most important thing was simplifying the experience of connecting to & transacting on a blockchain. Which is also why we all love Phantom. But there are two actions which are central to everything in crypto,
Self-custodying assets (tokens, NFTs, data etc)
Signing transactions/messages using your private key
This means that every single app or experience will require customers to carry out these actions. Hence, having standalone apps for it doesn’t scale. The best apps will abstract this out to deliver richer & more seamless user experiences.
An example of this is StepN’s mobile app implementing a dual wallet structure to include an off-chain spending wallet for seamless use and an on-chain self-custodial wallet for withdrawing, spending, etc.
I know this is inevitable, again, because of path dependency. I’ve had the privilege of witnessing the payments revolution in India. Initially there were many apps focused on building digital wallets. The primary focus of these apps was,
Users could add funds
Send and receive payments to friends and businesses
Carry out few utility transactions like recharging their prepaid phones, paying bills, etc
Here’s what mobile payment apps looked like as recently as 2014…
Eventually, with UPI and market consolidation, most of these apps died out or transformed. There are no standalone payment apps anymore.
Payments is mostly a feature provided by banking, telco, e-commerce & chat apps. The four payment focused apps that have achieved scale (Google Pay, PhonePe, PayTM & BharatPe) are desperately looking for alternative business models by launching value added services like investing, lending, etc.
Expect the same in crypto & web3.
The analogy is that today’s top wallets are equivalent to payment apps. Payment apps were essential to showcase how seamless mobile payments can be and prove out the first few use cases (e.g. recharging a prepaid phone or paying a cable bill). But “payments” quickly became a commodity.
The best apps did new things, facilitated by payments. The payment part just seeped into the background, taken for granted. Backpack does this to wallets. Similarly, owning assets, sending transactions, signing messages, etc will just seep into the background to make way for transformative new experiences.
Mobile is the next crypto frontier, Enter Now
Sufficient people are now working on tooling, infra, apps, etc that it feels inevitable that the next up-cycle will be on the back of mobile.
Coinbase recently announced their open-source mobile web3 SDK that allows developers to integrate a self-custodial wallet within their apps. This significantly brings down the effort compared to what a StepN would have undertaken. Thus more apps will start building these experiences in the near future.
Another big problem with building for crypto mobile is censorship of the front-ends. Regulatory bodies can just ban the front end and it cuts off access entirely. This deters projects from wanting to ship apps linked to their names in the first place. xNFT is an innovative attempt at solving this. Other similar attempts are emerging across the broader web3 ecosystem. Liam recently posted a tweet about Dappnet - composable and decentralised front ends. Jai Bhavani of Pentagon.xyz tweeted about Hyperapps - using tokens to decentralise & govern front-ends. All of these ideas are in the same ideological catchment area as xNFTs.
Expect tailwinds & traction behind building for mobile & building better crypto front ends to only increase. SMS + Saga & xNFTs + Backpack are the most prominent efforts within the Solana ecosystem.
The Solana mobile stack & Saga are attempting to deliver great mobile experiences by operating at the hardware level. SMS makes your phone a wallet. This allows you to sign txns using a single seed phrase stored in the encrypted safe zone of the device. Backpack makes a wallet a phone. Kind of. There are two important but distinct elements that come together. xNFTs are a new protocol for building and monetising crypto applications. Backpack is the first of many distribution and execution environments for xNFTs.
The best part is, both these approaches are complementary and essential at maximising the probability that crypto-native consumer experiences go mainstream. The SMS & Saga approach is more expensive, long-winded but more foundational. Whereas xNFTs & Backpack short circuit the whole process and enable crypto capabilities on existing mobile rails. Kinda like making your phone wear the Iron man suit.
The way I think about it is that xNFTs & Backpack provide the mobile rails for crypto today. Builders get a simplified development experience, instant access to distribution and potential for monetisation. As crypto mobile goes mainstream the protocol and the backpack app will be in pole position to adapt and build for the increased flexibility compared to what they’re getting from the mobile platform and app store today.
What should you do?
Developers. Start early & Level up your mobile crypto development skills. This could end up being the asymmetric skill bet of the decade. Whether through a weekend project, bounty or a job - build & ship as many mobile crypto apps as you can. Immerse yourself in the space. Head over to the RFP section at the end of this essay for the perfect opportunity to help you get started.
Projects. Start testing lite versions of your project on mobile right away. That could be as a xNFT, for SMS, etc. Try any, try many.
If it doesn’t work, your downside is maybe a few weeks of effort. If it works, you will suddenly get access to millions of users and an unfettered mobile-first design space as part of a thriving ecosystem. There’s too much at stake to not try. Btw, this is exactly how brands thought about building for these super app stores when they were first announced. I know because I was part of one such product team. Ship a lite version quickly, get a sense of how much traction there is & quickly iterate if you see adoption take off.
Super Protocol >> Super App
Backpack is more than a super app.
Super apps eventually suffer from the same pitfalls of the marketplaces they sought to displace. This is best outlined in Chris Dixon’s essay on why decentralisation matters.
These super apps become platforms which control access between each app and its customers (via APIs), also between different apps (through their ad exchange). Once their app stores gain sufficient scale it is in their interest to increase their take rate, launch in-house competitors, etc. This is partly why no consumer brand worth their salt will solely rely on a super app for distribution.
However, the underlying xNFT protocol is independent of the Backpack app. As a result, developers who build xNFTs are not bound to only use the Backpack environment. In the future if a dispute were to arise over fees, moderation policy, visibility terms, etc. developers could choose to use an alternate medium for distributing xNFTs without losing their existing user base.
It is also worth noting that Backpack itself is open-source & permissionless. Unlike super apps or existing wallets, you won’t need any approvals to ship your xNFT to Backpack. Neither will you have artificial constraints on what you can ship.
More importantly, xNFTs continue to interact with & live on the underlying blockchain and decentralised storage. This means that cross-app interactions are not gated via Backpack. Users continue to own custody of their data, assets & apps continue to have unfettered access to anything user’s have on-chain and choose to provide to them.
This is the best of both worlds, you get the efficiency and compounding effect of a super app along with the incentives and flexibility of web3.
xNFTs are liquid apps
The x in xNFT stands for executable. This means that instead of your NFT pointing to images, videos or media - it points to executable code. This can be hosted on Arweave, IPFS, etc. Just like you can trade, lend or stake NFTs - you can do the same with xNFTs. The very important improvement is that you can also transfer the underlying code, the update rights and future revenues on-chain.
xNFTs are a standard built using React. React is an open source javascript library for creating user interfaces. It was originally developed by facebook, back in 2013. As a product manager, there were 2 things I found exciting about React when I first heard about it back in 2017. The first one was that we could use React-native to build a single app and ship it to both android & iOS. Which means we could move twice as fast as building separate apps, score! But secondly, and more importantly, we could update components of our app “over-the-air”, i.e. without pushing an app update, waiting for it to be approved by the app store, and adopted by users. Anyone who has worked on apps will tell you this is a super power. It means you can iterate much faster, because mistakes can be identified and corrected much sooner.
So, xNFTs are apps. Backpack is an operating system for deploying, discovering and executing these apps.
Here’s a video of the NFT example we’d illustrated before
However, the most under-appreciated aspect about xNFTs seems to be the fact that they provide monetisation options for developers, independent of the distribution medium. Typically, if you want to sell your app you need to carry out an offline legal transaction and transfer the ownership of your app store account.
xNFTs are to apps what LP tokens are to lending. Tokenising a position creates a market for it. LP tokens allow you to both lend money but also spend it (as long as someone is willing to take that position off you). This is valuable because it makes markets more efficient, your funds are not locked up as long as there is demand for the position.
So, if you deploy a xNFT with 50k users, you can sell it to a buyer just like you would an app. The instances of each xNFT remain hosted as they were, customers can continue using them - just like they would with apps. The buyer receives the future revenues & update rights to them. Notice that there is no involvement of Backpack (unlike the app stores) in this transaction, it all happens on-chain.
Generally if you sold an NFT that represented some asset or utility (e.g. a membership or a house), the enforcement of the underlying asset was not guaranteed with the sale of the NFT. xNFTs change that. When you get ownership of the xNFT you can get ownership of the source code, including the rights to ship updates to all the users and future revenues from the app. This only works if the xNFT is hosted on decentralised storage like Arweave or IPFS where ownership can be transferred through an on-chain transaction.
This is great for builders and customers because it means that more apps will get built quicker, because there will be a new market for mid-size apps that wasn’t there before. As the cost of transacting goes down, the volume and type of transactions go up.
Ecosystem & Early Traction
If you’re not already excited about xNFTs, here’s another reason for you. All the best Solana apps are already building them.
This is great because the first users of Backpack will be crypto-natives who will already be familiar users of most of these apps. By onboarding them as partners, the team has virtually solved a lot of the cold-start problem. When you open your Backpack it’ll have all the apps you already know and use, but with richer new experiences.
At this point it is important to point out that you don’t need to be invited to build a xNFT for Backpack. The code is open-source, so you can just get started with an idea, laptop and an internet connection. You can also jump into their discord and request for the developer access needed. Keeping it slightly permissioned early on is important to prevent spam.
Bringing it all together
xNFTs are a new standard/protocol for building crypto applications. Backpack is the first OS for xNFTs.
In the short term, we’ll use the Backpack browser extension and the use cases will mimic what we’ve seen emerge in the past bull cycles. Like buying/selling/staking NFTs or borrowing/lending on DeFi apps, etc.
In the medium term, we’ll use the Backpack mobile app. This will be unlike any other crypto experience. From an end user perspective it will feel akin to a super app. New use cases that weren’t possible before will emerge. There will be less trading and flipping, more user engagement and use cases that connect to the “real world”.
In the long term, phones will start running systems like the Solana mobile stack. We’ll be able to install xNFTs directly onto the phone. And Backpack will be less of a super app and more of an app store.
None of this is inevitable but it seems likely if the momentum of builders supporting these efforts continues to grow. That probably depends on the user adoption that the early attempts generate. We’re likely to see a shift from financial metrics to user engagement metrics real soon.
Request for Proposal
For developers looking to dip their toes : Build a “hello world” xNFT. The first 5 people to tweet a public github link to a working xNFT get contributor status in Superteam. You can find some useful steps here but feel free to give it a flavour of your own
Happy Building!
Disclaimer: This post is not financial or investment advice. It is meant for informational & educational purposes only. Please do your own research about risks and compliance before buying, investing/ or trading.