Analyzing Backpack: The Super App that Merges NFT, Wallet, and Exchange

How should we perceive the recently hotly discussed @Backpack? Is it a wallet? An exchange? An NFT community? Initially, many are puzzled over how to categorize Backpack. In my view, it serves as a “super app” that combines NFTs, a wallet, and a regulated exchange. It could also be seen as a “closed-loop ecosystem” that nurtures users through a DApp mini-program and wallet exchange under the xNFT protocol. Why do I think this way? Let me explain my perspective briefly.

What is Backpack’s strategy?

Without considering the full scope of Backpack’s activities, one might easily adopt a fragmented understanding. Some people are drawn to the vibrant NFT community culture of Madlads, others relish the seamless user experience of the Backpack wallet, and still, others are excited about its pioneering model of integrating on-chain and off-chain transactions across its exchange and wallet platforms. How to explain it? These features are emblematic of Backpack, which, unlike the current blockchain ecosystem that operates through disconnected, modular liquidity markets, evokes a sense akin to Apple’s enclosed ecosystem.

Indeed, in an entirely open-source blockchain protocol market, adopting a closed-loop approach may seem somewhat unconventional. However, when viewed over an extended period, just like the longstanding rivalry between Android and iOS, has there really been a clear loser? A community-driven closed-loop ecosystem will experience a lengthy phase of widespread adoption, where various product lines progressively make their mark. Behind such product lines lie robust community engagement, superior user experiences, and strong resource consolidation capabilities. These elements are likely to converge at a strategic moment, creating a competitive advantage that is difficult for others to replicate. Following in the footsteps of giants like Apple and Xiaomi, Backpack is positioning itself similarly in its business strategy.

2) Currently, Backpack’s product line is heavily influenced by the Solana ecosystem, indicating that its growth is closely linked with Solana. Essentially, Backpack has developed a native wallet and exchange specifically for the Solana ecosystem, as well as a marketplace for xNFT mini-program DApps.

In the short term, it’s evident that Backpack has specific competitive strengths and weaknesses when compared to other blockchain products and protocols. For instance, unlike conventional centralized exchanges (CEXs), Backpack cannot rapidly adapt to cover the entire blockchain ecosystem, which limits its ability to seize early opportunities for listing new coins and attract a wide user base. However, projects that strongly align with Solana’s characteristics can thrive and evolve on Backpack, and early, committed users of the Solana ecosystem are likely to see substantial market returns.

What challenges does Backpack face?

As Backpack ventures to expand its market, it will inevitably encounter some hurdles, with airdrop distributions being a prime example. Due to regulatory compliance, Backpack carefully selects quality projects for airdrop rewards to users contributing significant trading volume, intending this as a long-term incentive that benefits participants over time. Essentially, it’s like earning a consistent “high annual yield” on an exchange for these users. However, as mentioned previously, these user benefits result from the platform strategically reallocating its consolidated resources. The platform must balance several factors, including the level of user engagement, the amount of capital invested, and importantly, the expectations from the project developers about token distribution. While the overall returns are generally positive when considering a longer timeline, isolating a single instance of volume trading coupled with an airdrop can be problematic. Poor management of this process could even lead to negative public reactions.

Why does this happen?

Essentially, Backpack serves as a platform that aggregates and manages resources, attracting quality projects to distribute airdrops and enticing high-caliber users to foster growth. This involves a continuous dynamic tradeoff. The platform can’t ensure that every operational activity will yield absolute profits for all participants because the distribution of tokens is managed by the project developers, the total airdrops are fixed, and the number of airdrop participants and the amount of capital involved are variable. With more participants, the individual share diminishes—it’s a straightforward concept.

At its heart, this scenario is about managing an incentive scheme for token distribution. The platform’s objective is to attract new users and enhance engagement, implementing a reward system that also seeks to maintain user participation. Managing this effectively is quite technical; instead of pursuing short-term, excessive arbitrage returns and facing potential losses, it makes more sense to evaluate the returns over a longer timeframe. On one side, the platform gains from premium resources that provide Airdrop benefits (like Pyth, W), and on the other, the expected growth of Backpack itself (e.g., through its own token launch) is seen as a deferred benefit that will eventually be realized.

What is Backpack’s value in the industry?

I view Backpack primarily as a “super app” that has evolved from the high-performance, layer1 public blockchain, @solana.

In the Bitcoin and Ethereum ecosystems, discussions are dominated by layer2 infrastructure narratives. However, application stories have been pushed to the next bull-bear cycle due to delays in real-world implementations. In contrast, the Solana ecosystem stands out by leveraging its high-performance chain to draw in new users with initiatives like MeMe and DePIN, which lay the groundwork for future applications while also spawning an array of DeFi, gaming, NFT, and payment applications. The Solana ecosystem inherently blends web2 and web3 elements, making the development of applications an inevitable task and a central theme in this bull market cycle.

Currently, most blockchain systems recognize that B2B narratives offer greater potential than B2C applications. Hence, while the focus remains high on layer2 and other infrastructure, the Solana ecosystem has developed a unique super app model that integrates NFTs, wallets, and regulated exchanges. Here, NFTs build community culture and engagement, wallets serve as gateways for user participation and app distribution, and regulated exchanges provide compliant pathways for financial transactions and real-world integration.

Amidst criticism of the blockchain ecosystem for overly hyping financial aspects, Backpack’s approach introduces a web2-style maturity into the web3 environment. This strategy could lead the way in grounding the application ecosystem and spreading a philosophy akin to that of mature web2 products, potentially setting a precedent for the industry’s maturation.

Considering the observations shared earlier, the challenges currently faced by Backpack become clearer:

1. A strong community is both a strength that enhances user engagement and a barrier to scaling the user base significantly. Many individuals, including myself, who were not part of the early community, find themselves involuntarily integrated into it.
2. A heavy emphasis on compliance lays a solid foundation for future growth and resilience. However, this focus can also stifle the diversity of early products and models, necessitating a commitment to long-term growth.
3. While the “super app” concept is compelling, the broader crypto industry faces the challenge of shifting from infrastructure-focused narratives to those centered on practical applications. This is not just a challenge for the Solana ecosystem but for all crypto developers across the entire blockchain environment.

Previously, I’ve mentioned that Solana, as a high-performance layer1 blockchain, is pioneering in advancing crypto infrastructure. However, it appears this assessment should be expanded. DApp mini-programs under the xNFT protocol and the integrated closed-loop system of Backpack software are also at the forefront of merging web2 and web3 applications.

Note: Many are drawn to Backpack due to expectations of it being the next “FTX 2.0,” eager to see how a project that shares FTX’s genetic makeup and background, yet aims to learn from its lessons, will evolve. Let’s keep an eye on its progress.

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