Kaito in-depth analysis: business model, profitability, competition and risks

Author: Caijie Web3

Introduction: A Great Experiment

Kaito is not a decentralized project in essence, but a project that attempts to establish a new profit distribution mechanism in the Web3-content creation industry. It is actually conducting a great experiment. If the experiment is successful, it may break through the scope of Web3 and be applied to other information industries.

Since it is not a purely decentralized project, we cannot judge the quality of this project by its degree of decentralization.

This article attempts to make a simple analysis based on the basic information of the project:

Project Mission: Solve the two major problems currently facing the content track

These two major problems are: inefficiency and unfairness.

• Inefficiency is manifested in: Affected by algorithms, users will be exposed to more and more information and opinions that are consistent with their own views, interests or beliefs, and are not likely to receive different or opposing views, resulting in an information cocoon or echo chamber effect. Moreover, the algorithm may be biased, making users further away from the truth.

• Unfairness is manifested in:

• Content creators only receive a small part of the value of the content they create;

• The time and energy invested by the majority of users is the basis for the continued existence of centralized platforms, but they hardly participate in the sharing of results;

• Centralized platforms have absolute power, lack transparency in the allocation of attention (traffic), and do not bear responsibility.

Three core assumptions:

Kaito is based on the following three assumptions when designing its business model.

• Assumption 1: Attention can be assetized or tokenized, and then used as the basis for a fairer mechanism.

• Assumption 2: Content creators in the market use their hard-earned points (Yaps) to vote, which can better reflect the real situation of a project being recognized and accepted by the market. Referring to Polymarket's prediction of the results of the US election, the results of voting with real money are more accurate than the results of traditional conventional market research. In order to achieve this effect, a reasonable incentive mechanism is needed. At present, the points mechanism (Yaps) adopted by Kaito forms a community of interests with project parties and traffic leaders, which is an impressive innovation.

• Assumption 3: Market sentiment can be quantified. The information expressed by all people is the overall sentiment of the market.

Principle: Make something that people are willing to use

Business model: Reshape the attention economy with Web3

Profitability: Still in its infancy, yet to be seen

Revenue

As an information platform that operates in a decentralized manner, the difference in revenue sources from traditional centralized information platforms is reflected in:

Both exclude free users from the value distribution system, while Kaito directs benefits to users with high participation and high-quality output.

From the source of income, Kaito has a large portion of income less than traditional Web2 platforms: advertising income. Moreover, Kaito currently only covers the Crypto industry, and the number of information audiences is far smaller than that of traditional Web2 platforms; among them, Kaito Pro's paying customers include not only project parties, but also investment institutions and researchers, which can be regarded as a certain foundation; most of Yapper Launchpad's paying users are project parties, and the number is even smaller. This means that the number of project parties willing to join the Kaito ecosystem has become the main factor affecting Kaito's income. From the data disclosure method of Kaito's official Dune page, we can roughly infer that the number of paying customers is not very large at present, because it mainly publishes some ecological indicators, the revenue is annualized data, and there is only the number of monthly active content creators, not the number of actual paying customers. We have reason to speculate that Kaito's revenue model (subscription + token economy) is still in its early stages, and even if the subscription revenue is stable, it is limited in scale, and the token economy depends on the value and market acceptance of the $KAITO token.

Cost

The difference between Kaito's cost structure and traditional Web2 centralized information platforms is reflected in:

Traditional centralized information platforms enjoy huge economies of scale due to their huge number of users. The infrastructure costs and technical development and maintenance costs mentioned in the table above are very small in unit cost after being amortized.

For the customer acquisition cost mentioned in the table above, we can see on the official Dune page that the Total Value Distributed has exceeded 72 million US dollars (far greater than the financing scale of 10.8 million US dollars), which can be understood as the cost Kaito pays to maintain the development of the entire ecosystem. Dune only announced the number of Yappers as 210,000. We can use TVD/No. of Yappers to roughly estimate Kaito's customer acquisition cost of about 335 US dollars, which is significantly higher than the average customer acquisition cost of Web2 centralized platforms (according to Userpilot, the average customer acquisition cost in the e-commerce industry is about 70 US dollars). Even if Kaito's unannounced number of paying customers is included in the calculation, the customer acquisition cost may still be high. Of course, as the Kaito ecosystem becomes more and more prosperous, many paying users will be actively attracted, and the marginal customer acquisition cost can even be reduced to 0, but this still needs to be based on large and continuous ecosystem maintenance costs.

Kaito's cost advantage is only reflected in lower labor costs for the time being.

Combining revenue and cost, Kaito's profit model is still in the exploratory stage. Revenue proves that the product can be accepted by customers, but whether it can achieve profitability remains to be further observed.

Product Analysis: Product Matrix with Moats

So far, Kaito has created a relatively complete product matrix, basically formed a moat, and established a leading position in the InfoFi track. Let's take a look at the characteristics of each product one by one, and understand the product's design logic, customer base, and competitiveness.

Kaito Pro: Basic Product

Although the name contains Pro, it is actually a basic product in Kaito's product matrix.

The purpose is to extract information, understand semantics and do some basic visualization, which is equivalent to an intelligent search engine in the field of encryption.

Customer groups are investment institutions, project parties, and researchers. Official announcement has begun to make profits.

The pain point needs solved are: aggregation of encrypted information and intuitive presentation.

Moat: The accuracy and timeliness of information.

Competitors:

• Alva.xyz is an AI-enhanced encrypted data analysis tool similar to Kaito Pro, focusing on on-chain data visualization and market insights. Its depth in the field of on-chain analysis is a competitive advantage.

• Nansen: Known for its on-chain analysis and NFT data, it has a user-friendly interface and powerful functions. It may be Kaito Pro's main competitor in the high-end user market, especially in data visualization and user experience.

Kaito Yaps: Core Innovation

Kaito uses AI algorithms to tokenize influence, which in turn serves as the basis for other application scenarios, including for reward distribution. Because it is just a mechanism, there is no source of income.

Customer groups:Content creators, project owners, centralized platform users (such as X platform users).

The pain points that are solved are: creators need to monetize content, project owners need to increase project visibility and participation, and users want to get rewards after investing energy and time.

Moat:A set of attention proof mechanism POA (Proof-of-Attention). It includes three aspects, which is essentially a comprehensive set of algorithms:

• Proof-of-Work — Volume of subject-relevant content

• Proof-of-Exchange — Real, reputation-weighted engagement

• Proof-of-Insight — Insightful, original & focused discussions

Competitors:

• Mirror: Compared with Kaito Yaps, Mirror may be more decentralized (content storage is completely decentralized), but its attention quantification mechanism is not as detailed as Yaps's AI-driven model.

• Lens Protocol: A decentralized social graph protocol that allows users to create and share content and incentivizes creators through tokens. Lens' community governance and content distribution capabilities may challenge Yaps, but its AI analysis depth is limited.

Kaito Connect:

In Kaito's product matrix, it is an advanced product. Simply put, this is a design that binds creators, users, and project parties into a community of interests, with the aim of further structuring and sorting out the information obtained by Kaito Pro to ensure that attention and capital flow to the most valuable links. Kaito Connect has three pillars:

• POA (Proof-of-Attention)

• Creator Ranking (Yapper Leaderboard). There are both overall rankings and rankings by project.

• Yapper Project Launchpad. It is equivalent to the Kaito project team setting up a new stage, which can also be regarded as a dynamic project ranking list. The biggest attraction of this stage is fairness, and it is fairness based on market attention. Three projects are selected to be put on the Yapper Launchpad through a voting mechanism every week. The voting is conducted by content creators (Yappers) and holders ($Kaito Holders), and the weight of the two on the voting results is 25% and 75% respectively. Considering that a person can be a Yapper and a $Kaito Holder at the same time, it can be understood that this voting rule gives greater power to those who participate in the Kaito ecosystem with real money, and those content creators (Yappers) who participate in the Kaito ecosystem by investing time and energy, although they also have an influence on the voting results, if they want to increase their influence, they are encouraged to hold more $Kaito. This is also a reflection of the second core assumption mentioned above.

The customer group is the same as Kaito Yaps, but it focuses more on the project side, because the main output of this product is a project ranking list (Yapper Launchpad), which is most relevant to the interests of the project side.

The pain points solved are: 1) Projects no longer need to have good relationships with traditional centralized platforms to gain market attention; 2) Projects want to reward the community through more long-term sustainable and accurate solutions.

Competitors:

• Layer3: Focuses on decentralized social and reward systems, allowing users to earn points through tasks. Some functions overlap with Kaito Connect's community incentives, but its AI analysis and attention quantification are not as good as Kaito.

• QuestN: A decentralized task platform that connects projects and users and promotes participation through reward mechanisms. It may be a potential competitor of Kaito Connect in the Launchpad function.

Risk Analysis

As mentioned above, Kaito's existing competitors all have their own strengths. These competitors are not complete substitutes, but enter the InfoFi market from different angles. Kaito's differentiation lies in the combination of AI and decentralization, but its long-term competitiveness still needs to verify the sustainability of ecological rewards and user stickiness.

Who are the potential competitors? Elon Musk, or other centralized platforms. The core advantage of these centralized platforms is that they have a large amount of data and strong technical strength. If they are willing to give up some interests and embark on the path of decentralization, they may bring great pressure to projects like Kaito.

Risk of information interruption: At present, Kaito's operation is mainly based on the information openness of various centralized information platforms (such as X) + user permission. If X is closed or prohibited from using AI to scan and capture information, it will not be sustainable.

Market cycle risk: User activity is affected by the overall risk appetite of the market. If a bear market comes, the overall attention of the crypto market will decline, and the income of the Kaito project may be greatly reduced. Therefore, the project party needs to prepare for the bear market and conduct a stress test on its cash flow under the condition of no income for 2 years to ensure that the project team can safely survive the bear market. If the test results are not ideal, you can consider jumping out of the cryptocurrency industry and entering other industries to provide information integration and diversion services to increase the chance of survival. In addition, some costs can also be transferred to reduce cash flow pressure. For example, it is agreed with the project party who wants to be on the list that the project party will bear the Gas fee.

The rules are not transparent. Although the description documents on the official website have many rules, the core rules are not disclosed, such as the detailed calculation rules of Yaps points. It is recommended to be transparent and open to reflect the basic spirit of the Web3 industry, but the project party can still retain control over the rules. At present, this rule has a strong centralized characteristic and is running well, but if a certain rule adjustment in the future breaks the balance of interests of all parties, it may bring adverse consequences and requires special care.

Summary: Let us look forward to it together

In the process of building a decentralized utopia, we need to carry out decentralized transformation in various fields, and information finance (InfoFi) is one of the fields that cannot be avoided. At this stage, "decentralized content creation" must indeed rely on the Web2 platform, and centralized rules must be established first, otherwise it will become "cooking without rice". However, this does not mean that decentralized content creation is a false proposition, but a long-term goal that requires the joint efforts of technology, ecology and community. Kaito shoulders the great mission of promoting decentralization in the field of InfoFi, and provides innovative solutions for content value distribution through AI and token incentives, which is already a remarkable achievement!

From a broader perspective, the realization of decentralized content creation needs to break through the limitations of existing infrastructure, combine decentralized storage, social protocols and governance mechanisms, and gradually get rid of dependence on Web2 platforms. Kaito's practice is an important step in this process, but to truly achieve decentralization, it is necessary to continue to iterate on technical transparency, community governance and ecological collaboration.